SIERRA WIRELESS $43.46 (Toronto symbol SW; TSINetwork Rating: Extra Risk)(604-231-1100; www.sierrawireless.com; Shares outstanding: 31.9 million; Market cap: $1.4 billion; No dividends paid) makes modules that connect products to the Internet. This is known as machine-to-machine (M2M), or more generally as the Internet of Things.
Web-connected products can be remotely monitored—and potentially fixed—before they cause a breakdown. For example, makers of smart electricity meters, such as Itron, use the company’s modules to connect their products to the web. Sierra’s technology can also warn carmakers of possible defects developing in vehicles.
The company has grown quickly over the last five years, with revenue rising 53.2%, from $358.0 million in 2010 to $548.5 million in 2014 (all figures except share price and market cap in U.S. dollars). It made $0.63 a share in 2014, up sharply from $0.23 in 2013.
Sierra spends a high 15% of its revenue on research to stay ahead of the competition. It’s also making acquisitions, but it’s staying away from big purchases in favour of smaller software firms and companies with specific expertise in connecting machines.
Most recently, in December 2014, it purchased Sweden-based Wireless Maingate AB for $90 million. Sierra can now offer Maingate’s wireless coverage and services to its hardware customers, which saves them from having to go through a telecom provider.
The company holds cash of $207.1 million, or $6.53 a share, and has low debt. The stock has more than doubled since August 2014 and now trades at 34.5 times Sierra’s forecast 2015 earnings of $1.26 a share. That’s high, but it’s acceptable in light of the company’s high research spending and strong growth prospects.
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