A Small-Cap Play On Connected Devices

One off-the-beaten path way to play the connected devices trend may sound a little robotic at first. It’s called machine-to-machine (M2M) networking. But it’s not as futuristic as it sounds at first. And one company in particular is growing quickly in this industrial market.
The company is CalAmp (NASDAQ:CAMP). It builds the hardware and software that allow electronic devices to communicate with each other around the globe
Its products have become extremely popular for tracking the location and usage of high-value mobile assets such as shipping containers and heavy equipment. They are also used to monitor fixed assets such as power generators and oil rigs.
The idea behind CalAmp’s products is relatively simple and straightforward. Once an organization is able to track the movement and usage patterns of remote assets it is better able to protect them from harm. It can also make sure they are performing up to potential.
Since the company’s equipment can work over cellular networks or satellite networks, it also offers a communication link that might not otherwise be possible in remote areas.
The relative cost of installing this equipment is small whereas the value it provides is large. This is why companies like Caterpillar (NYSE:CAT) have begun to use CAMP’s equipment around the globe.
M2M communications is a rapidly growing market, and CAMP is one of the best in the business. Its largest source of revenue comes from mobile resource management. This service includes monitoring fleet vehicles and shipping containers, recovering stolen vehicles and managing mobile workforces.
It also generates approximately a third of its revenue from managing wireless networks for energy, governmental, transport and automotive organizations. Examples of typical networks are a smart electricity grid, an oil pipeline, and a railroad.
CAMP has a number of very specific growth opportunities that it is going after.
The most obvious opportunity is to expand internationally. International revenues reached 19% of company total in 2013, and over 20% thus far in 2014.
Heavy equipment is another massive opportunity. It’s safe to assume that other heavy equipment manufacturers will start to offer similar services to compete with Caterpillar. With some luck they’ll use CalAmp’s products as well.
CAMP is also building out an application offering which will bring a host of new tools to its customers. Everybody loves a good app, and it doesn’t take a lot of imagination to see why bringing a wide variety of consumer-selected services to customers would be popular.
CalAmp will report third quarter results on December 23rd. Investors are hoping that the stock responds with a jump similar to that which occurred after second quarter results were released in October.
It’s not that Q2 results were that amazing on their own – after all revenue growth was essentially flat and GAAP EPS was only up by a penny (from $0.08).
But CAMP’s results indicate that many of the growth catalysts investors are expecting are in fact taking shape. Demand for mobile resource management products is strong, profit margins in the Wireless Datacom segment are growing and shipments to energy customers, including a large solar customer, are also growing.
The signs here point toward a company that is on track to grow significantly into 2015.
While it didn’t give guidance for 2015, it definitely set expectations for accelerating growth, which I estimate will be near 20% for revenues and 25% for earnings.
CalAmp has zero debt and over $36 million sitting in the bank. And shares appear cheap, trading at less than 17-times next year’s estimated earnings. This is a connected devices play that most investors don’t know about, but which looks to be heading higher into 2015.

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