AKDS is a Standout in Information Technology space
Ever since Newark, New Jersey based Arkados Group, Inc. (AKDS) announced their financial results last October 16 th, 2016, their stock price has been on a tear, making new 52 week highs almost every week, and has increased nearly 100% (from $0.62 to $1.14). The reason for the stock performance is their growing sales numbers, and they are now one of the fastest growing technology companies in the US public markets, with sales having increased 297% from year to year.
Only six other companies that were listed and had market caps below $150M can claim to have had faster growth in revenue from the previous year than AKDS, and several of them include Finjan Holdings, Inc. (NASDAQ:FNJN), +1,896, Nxt-ID, Inc. (NASDAQ:NXTD), +511, and Network-1 Technologies, Inc. (NYSE MKT:NTIP), +467.
For the last 4 quarters ending August 31 st, 2016, the company had sales of $2.2M, up from that same period last year, when they had sales of $550K. How did they grow sales so quickly? Well to start off with, they are in the red-hot Internet of Things (IOT) sector, which is one of the most exciting areas of technology to be in. The Internet of Things (also known as the Industrial Internet) incorporates machine learning and big data technology, harnessing sensor data, machine-to-machine (M2M) communication and automation technologies to seamlessly connect industrial processes.
Arkados connects wireless and powerline communication-based products (mainly sensors) with its Arktic software platform, a cloud-based device and system management software solution. They also created a division last year that provides energy conservation services and solutions to commercial and residential buildings in the northeastern United States. They use this product offering to build a relationship with an industrial customer, and then cross-sell the sensors and software solutions.
This new sales effort has really been paying off, and the Company keeps announcing new sales contracts and multiple new contracts from the State of New Jersey, which has been increasing orders from AKDS for new facility retrofits every quarter.
So, how high could AKDS be go? If you assume that they will continue to grow at the same rate of 297% over the next year (since they have a small revenue base, that shouldn't be too hard), and you were to multiply this by their last 4 quarters of sales of $2.2M, you have 1 year forward sales projections of $6.5M. If you were to use the revenue multiple of ORBCOMM, Inc. (NASDAQ:ORBC), an IoT company with $600M market cap, of 4.5x (and AKDS is growing much quicker than ORBC), you get to an equity value of $29.4M (or 1.5x) their existing market capitalization. 1.5x the existing stock price of $1.14, would be $1.71. The stock has very little float, and has traded as high as $1.51 in the couple of few weeks. This consolidation down to $1.14 presents an excellent buying opportunity, with a little more positive news, a price in the $3-$5 range would not be out of the question in the next 3-6 months.
In the meantime, it will be very interesting to watch AKDS continue to make 52 week highs, as investors look forward to their next quarters revenue numbers which continue to head upwards.
Disclosure: I am/we are long AKDS, FNJN.