Avigilon Corp.’s (TSX:AVO) shares have increased 21.5% year to date due to a strengthening in the business and because expectations had gotten so low that the company started to beat them. In fact, the company beat consensus expectations in the last two quarters.
Revenue trending up
Revenue increased 25% in the fourth quarter of 2016 and 23% for the full year, which is a solid result and shows an upward trending revenue growth pattern. On a constant-currency basis, revenue increased 27% and 24%, respectively, for the fourth quarter and full year.
And the company is seeing strength in all regions with revenue growth of 138% in Asia Pacific, 41% in Latin America, 32% in Europe, Middle East and Africa, 20% in Canada, and 13% in the United States.
Margins rising
After a couple of years of downward pressure on margins, it looks like margins are showing signs of strengthening. While the guidance that management has given is pretty wide, with its 2017 EBITDA margin expected to be between 13% and 17%, we are seeing expenses as a percentage of revenue falling.
In the fourth quarter, expenses as a percentage of revenue declined, and the EBITDA margin was 20.3% versus 19% in the same period last year.
Cash flow from operations was $43 million versus cash used in operations of $1.8 million in the same quarter last year.
And although the debt level has crept up in recent years, the balance sheet remains strong.
Going forward
Revenue is expected to be between $390 million and $425 million in 2017, and while this is below management’s initial expectations of a revenue run rate of $500 million by the end of 2016, it represents an increase of 10% at the low end of the guidance, 20% at the high end, and 15% at the middle of the range.
Valuation
So we all know that expectations have been adjusted downward since the company’s glory days of optimism and strong growth and margins, but we also know that the stock has come down to reflect these changes. The stock hit highs of over $30 back in early 2014 and has been steadily declining because results were disappointing and margins got hit as the company ramped up spending to support its growth plans.
Now the stock is sitting at $15.58 and trading at a P/E ratio of 25 times 2016 earnings and 22 times 2017 expected earnings. But if these latest results are an indication of what’s to come, we may start seeing an increase in expectations and the market regaining confidence in the company and its ability to grow revenues and maintain and even further increase margins.
