OCT 17, 2023
Sierra Wireless, Inc.: An opportunity for 5G & IoT investors?
SEP 08, 2021
In a world where there are plenty of 5G and Internet of Things (IoT) stocks commanding tens or hundreds of billions of dollars of market cap, Sierra Wireless, Inc. (NASDAQ:SWIR) often gets ignored.
It doesn’t help that Sierra Wireless stock hasn’t been soaring lately. In fact, since the company’s latest earnings report was released on August 12, SWIR stock has fallen by more than 10%.
But that’s exactly why Sierra Wireless stock could be a good opportunity. While SWIR stock is far from being the hottest ticker at the moment, the company is actually well positioned to benefit from the increasing adoption of 5G and IoT.
Simply put, this company is well set for the 5G and IoT era.
Sierra Wireless, Inc. is an IoT pioneer with more than 25 years of innovation in the wireless space. The company offers devices, network services, and software solutions to help companies thrive in the connected economy.
Although Sierra Wireless isn’t a big player in the 5G and IoT space in terms of market cap, it has built a solid presence in the sector. The company has shipped 150 million devices worldwide, supports 80 networks globally, and has more than 200 wireless technology patents.
Four out of five of the top 20 utilities use Sierra Wireless, Inc.’s “AirLink” routers for smart grid deployments and vehicle fleets. More than 50% of the top 100 police departments rely on the company’s routers in cruisers and incident response vehicles. Moreover, three out of four high-performance emergency medical service systems use the company’s routers to support paramedics in the field. (Source: “Corporate Overview: August 2021,” Sierra Wireless, Inc., last accessed September 7, 2021.)
With development teams on three continents, Sierra Wireless has invested more than $75.0 million annually in research and development.
Chart courtesy of StockCharts.com
As mentioned earlier, Sierra Wireless stock isn’t a hot commodity at the moment. The recent pullback had to do with an earnings report, but that report may not be as bad as the stock-market reaction suggests.
In the second quarter of 2021, Sierra Wireless generated $132.8 million of revenue, representing an 18.9% increase year-over-year. (Source: “Sierra Wireless Reports Second Quarter 2021 Results,” Sierra Wireless, Inc., August 12, 2021.)
In particular, Sierra’s IoT Solutions segment delivered 16.3% revenue growth compared to a year earlier. Its Enterprise Solutions segment, on the other hand, saw its revenue increase by an even more impressive 24.6% during the quarter.
The company also generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $4.3 million in the second quarter of 2021. That marked a substantial improvement from its adjusted EBITDA loss of $8.7 million in the second quarter of 2020.
Those improvements are nothing to sneeze at. What disappointed investors was that Sierra Wireless, Inc. said it was experiencing production interruptions due to COVID-19 cases at a contract manufacturing facility in Vietnam.
These interruptions are hurting the company’s ability to build and ship cellular embedded modules and gateways to its customers in the third quarter of 2021. As a result, management has pulled their third-quarter guidance and said they expect a material negative impact on Sierra Wireless, Inc.’s financials for the quarter.
That said, this is likely going to be a short-term hiccup. In the company’s latest earnings conference call, its chief financial officer, Sam Cochrane, said, “We believe we are taking appropriate steps to navigate through the impact of COVID-19 this quarter. “
We are benefiting from very strong customer demand and backlog for our products and solutions and believe the macro trends of IoT and 5G are accelerating. We are also using our strong balance sheet to strategically invest now, secure components and capacity to ensure a strong Q4 recovery coming out of the COVID-19 related production interruptions in Vietnam.