Why Sierra Wireless, Inc. Is Down Over 2%

Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR) was down over 2% in early trading following its Q3 earnings release. What should you do now? Let’s find out.

Sierra Wireless, Inc. (TSX: SW)(NASDAQ: SWIR), the world’s leading provider of fully integrated device-to-cloud solutions for the Internet of Things, announced its third-quarter earnings results after the market closed yesterday, and its stock has responded by falling over 2% in early trading today. Let’s break down the results, its outlook on the fourth quarter, and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity.

A quarter of very strong revenue and profitability growth

Here’s a quick breakdown of 10 of the most notable financial statistics from Sierra Wireless’s three-month period ended September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
OEM Solutions revenues US$138.53 million US$127.77 million 8.4%
Enterprise Solutions revenues US$26.28 million US$18.94 million 38.8%
Cloud & Connectivity Services revenues US$8.43 million US$6.86 million 23.0%
Total revenues US$173.24 million US$153.56 million 12.8%
Adjusted gross profit US$57.91 million US$49.48 million 17.0%
Adjusted gross margin 33.4% 32.2% 120 basis points
Adjusted EBITDA US$13.05 million US$9.70 million 34.6%
Adjusted earnings from operations US$9.35 million US$6.33 million 47.8%
Adjusted net earnings US$7.59 million US$4.14 million 83.3%
Adjusted earnings per share (EPS) US$0.23 US$0.13 76.9%

Q4 outlook 

In the press release, Sierra Wireless also provided its outlook on the fourth quarter, calling for revenues in the range of US$172-180 million and adjusted EPS in the range of US$0.21-0.29.

What should you do now?

It was a great quarter overall for Sierra Wireless, and the results beat the consensus estimates of analysts polled by Thomson Reuters, which called for EPS of US$0.20 on revenue of US$170.6 million. On top of that, the company’s outlook on the fourth quarter came in line with the consensus estimates, which call for adjusted EPS of US$0.26 on revenue of US$176.4 million.

With all of this being said, I think the 2% decline in its stock represents an attractive entry point for long-term investors for two primary reasons.

First, it’s one of the best stocks to play the growth of the Internet of Things (IoT). Sierra Wireless is the leading provider of device-to-cloud solutions for the IoT, and the demand for its offerings are increasing, which led to its revenues increasing 12.4% year over year to US$508.54 million and its adjusted EPS increasing 85.4% year over year to US$0.76 in the first nine months of 2017. The company is on pace to achieve analysts’ expectations of adjusted EPS growth of 47.1% to US$1.00 per share in 2017, and they expect its EPS to growth another 15% to US$1.15 in 2018, which I think is very achievable as well.

Second, it’s undervalued based on the aforementioned growth. Sierra Wireless’s stock now trades at just 22.4 times fiscal 2017’s estimated EPS of US$1.00 and only 19.5 times fiscal 2018’s estimated EPS of US$1.15, both of which are inexpensive give its current earnings-growth rate and its estimated 13.1% long-term earnings-growth rate.

Sierra Wireless’s stock has risen more than 100% since I recommended it in February 2016, but it’s down over 4% since I recommended it in August of this year. I think the stock represents as great of an investment opportunity today as it ever has, so all Foolish investors should strongly consider using today’s weakness to begin scaling in to long-term positions.

Fool contributor Joseph Solitro has no position in any stocks mentioned. David Gardner owns shares of Sierra Wireless. The Motley Fool owns shares of Sierra Wireless.

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