Impressive Growth From Avigilon in 2013. What’s Next?

What’s next for this fast-growing company?

The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Last week, video surveillance company Avigilon (TSX:AVO) reported 2013 year-end results that were impressive on many fronts. The company continues to achieve impressive top-line growth along with impressive bottom-line growth. What are the key takeaways for investors, and what’s next for this fast-moving company?

Profitable growth is key

Avigilon has demonstrated its ability to achieve impressive revenue growth while still growing margins. Revenue increased 78% in 2013, accompanied by an improvement in margins. Gross margins increased to 54.2% in 2013 versus 49.3% in 2013, and operating margins increased to 15.7% from 10.4%. This margin improvement is attributed to purchasing economies of scale as well as manufacturing efficiencies as sales have increased. Free cash flow increased to just under $20 million, an increase of over 150%.

Investing to drive future growth

R&D expense in the fourth quarter was $3.7 million, double last year’s level, and will continue to rise as Avigilon continues to invest in innovation. However, this growth in R&D expense is expected to be lower than sales growth, thus maintaining margins and profitability.

Management’s goal is to have a revenue run rate of $500 million by 2016. On the results conference call the company reiterated that it is very confident that it will be able to achieve this goal. With revenues currently at $178.3 million, this goal would imply an annual revenue growth rate of just over 40%. Management also said on the call that it believes this goal is actually a conservative one.

What’s next?

During 2013, Avigilon completed two acquisitions, RedCloud and Video IQ. RedCloud is a provider of web-based, physical and virtual access control systems, and gives Avigilon access to a complementary product line to its surveillance solution. Video IQ is a leading global video analytics company that gives Avigilon a strong portfolio of intellectual property (40 pending or granted patents). Once completed, these acquisitions will enable Avigilon to seamlessly combine and control HD video surveillance, access control, and video analytics.

Foolish bottom line

Avigilon’s shares have performed exceptionally well and are trading at high valuations. However, I believe that there is still plenty of room for further gains. In my view, this is just the beginning. Avigilon gives investors exposure to strong industry growth trends that are just beginning, and a profitable company that is achieving strong margins, strong ROE, and strong financial health. And it is successfully using this strength to profit from these industry trends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no positions in any of the stocks mentioned in this article.

More on Investing

Hands holding trophy cup on sky background
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs
Investing

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting
Investing

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »