Sierra Wireless Inc. (TSX:SW)(NASDAQ:SWIR) is down more than 40% this year and investors who bought the stock thinking it was a no-brainer play on the Internet of Things (IoT) are wondering why they are getting their heads handed to them.

IoT leader in the M2M space

Fans of the stock are looking at the fundamentals and saying the stock is a great buy.

Through a series of strategic acquisitions, Sierra has built an impressive IoT product portfolio that includes wireless modules, gateways, modems, and cloud services all designed to meet a broad array of machine-to-machine (M2M) needs.

The company’s AirPrime 2G, 3G, and 4G wireless modules are deployed in mobile computing, automotive, and industrial applications. Sierra’s AirLink wireless gateways are used in remote outdoor and in-vehicle scenarios. The company’s AirVantage M2M Cloud platform is the backbone of the ecosystem and automatically connects Sierra’s full suite of products as well as third-party devices, all using the cloud.

This year the company added Sweden-based Wireless Maingate to the arsenal, a firm that provides managed M2M connectivity with leading-edge over-the-air subscription provisioning.

This all sounds like a bunch of technical jargon, but the bottom line is that the company has been making all the right moves to enhance its position in the market.

Strong earnings and a solid balance sheet

Over the past couple of years Sierra has delivered strong revenue growth and the balance sheet is in pristine condition.

The company reported solid Q1 2015 numbers. Revenue hit a record $150 million, a 24% increase compared with Q1 2014. The company finished the quarter with cash and cash equivalents of $100 million and provided Q2 revenue guidance for a respectable $156 million.

What’s wrong?

Sierra had a big run from $20 per share last summer to above $55 at the end of December. Investors rang in New Years, partying like it was Y2K again, but the hangover has been brutal, just as it was 15 years ago when the stock soared to nosebleed levels.

In fact, when you look at the company’s history, the dramatic rise and subsequent plunge is par for the course, and it looks like the process is repeating itself.

Some analysts say revenue growth is slowing down and the stock simply got too far ahead of itself. Therefore, the pullback could simply be profit-taking by traders before the next leg upward.

Another idea revolves around the fact that Sierra is still quite small and is playing in a sector of the market that is attracting a lot of attention from the tech giants.

At the time of this writing, Sierra has a market cap of just US$850 million. To put the challenge into perspective, IBM recently set aside US$3 billion to set up a new IoT division.

Sierra simply does not have the financial firepower to compete if the goliaths decide to target its niche.

What should investors do?

At this point the trend is still downward and the stock is at another critical technical point. On the TSX, Sierra is flirting with $30 per share. If that holds, the stock could rebound back toward $40. If the stock breaks below $30, there is very little resistance again before the $20 mark.

It would be best to wait for a confirmation that the rout has ended before starting a new position in the stock.

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