Seeking Alpha

Airgain: Opportunity Everywhere You Look - 70%+ Upside

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About: Airgain, Inc. (AIRG)
by: Cobiaman
Cobiaman
Long/short equity, value
Summary

Antennas are ubiquitous and getting more complicated.

Airgain is a leader in the design of complex antennas.

Revenue growth plus operating leverage will result in an estimated $0.68/share EPS in 2021.

20x this EPS number, plus the $3.38 in net cash the company has on its balance sheet, results in a $17 stock, 72% upside from current levels.

Airgain (NASDAQ:AIRG) is a designer of small, complex antennas. In your home gateway, there are probably 4-12 antennas for WiFi, Z-Wave, Bluetooth, etc. Airgain is the leading player in this market, which is not so competitive, given Airgain's advantages in range and signal strength. An example of a product with Airgain inside is Comcast's (NASDAQ:CMCSA) xFi Advanced Gateway. This gateway has 12 antennas at an average selling price ("ASP") of about $0.25 each, for a total dollar content per gateway of $3 for Airgain. This gateway is used by Comcast to enable 1 Gigabit WiFi in each user's home and necessitated the use of Airgain's antennas due to their high-end performance. Comcast has 25 million users, so the revenue potential from this one product is tremendous.

Airgain got its start in the consumer device market with products like the xFi Advanced Gateway, wirelessly connected TVs, routers, etc. While some consumer products, like phones, are notoriously fickle, and a component can be designed in one year and out the next, Airgain's consumer business is much more stable. Design wins take a long time, but once you are designed in, you are in for the life of the product which can be up to 5 years for something like the xFi Advanced Gateway. Within the consumer business, there is a coming catalyst with the roll-out of WiFi 6-enabled products. This next generation of WiFi promises much faster speeds and lower latency than previous generations. These products are being designed now and will roll out in 2020. This has caused a bit of a pause in Airgain's revenue in 2019 as manufacturers waited to release their next generation products.

In addition to the consumer market, Airgain competes in the enterprise and automotive markets. The company acquired Antenna Plus a couple of years ago to get into the fleet and automotive markets. These antennas are much higher dollar value (up to $20 each) but much lower volume than the consumer market. The design cycle and product release cycle are much longer than consumer market, with product launches occurring 3-5 years after starting the design. I view this business as almost a free option as Airgain has been racking up design wins that will not start hitting until late 2020, 2021, and 2022. While most investors don't have the patience to wait out these design cycles, I think you will be richly rewarded when they start hitting.

Airgain has also recently entered the enterprise market. These are wireless routers and access points providing WiFi in the office setting. These antennas can cost up to $100 (!), but again are lower in volume than in the consumer space. This market shares the attribute of long product cycles as when a manufacturer like Cisco (NASDAQ:CSCO) releases a wireless product, it will be in the market for years to come.

Finally, Airgain is a likely beneficiary of 5G. The company makes antennas that sit on the outside of houses and receive and transmit the millimeter wave transmissions from base stations and then pass them to the interior of houses. This functionality will be necessary because millimeter waves cannot penetrate most types of housing materials. How big this opportunity can be remains to be seen, but it seems like at least another option on the story.

The consumer pause plus some trade war effects pushed Airgain's revenue down 7% in 2019. We think the company can grow 13% in 2020 and 18% in 2021. With a strong focus on keeping costs down, we think 2021 EPS could be in the $0.76 range. When adjusted for interest income, it comes out to $0.68. Putting at 20x multiple on that, plus the $3.38 in net cash, results in a $17 stock price or about 70% from current levels.

Disclosure: I am/we are long AIRG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.