It has been a wild ride for Avigilon Corp. (TSX:AVO).
After rising to highs of $34 at the beginning of 2014, the shares proceeded to fall, and fall, and then fall some more, as the company began to sacrifice margins in the name of sales and market share growth.
But this year, the stock has finally begun to rise again, and at this point in time, it has a year-to-date return of 37%. With the third-quarter results, which were released Monday, we can see that the company is deserving of this and more.
Here are the key takeaways from the quarter that offer confirmation of my bullish stance on the company:
Avigilon reported third-quarter results which showed the kind of operating leverage that investors have been waiting for.
Revenue increased 13% versus last year and was in line with what the market was expecting.
But, here is the really good news: adjusted earnings per share increased a much better than expected 38% to $0.29 per share.
This can be attributed to the operating leverage that the company achieved this quarter. Operating expenses as a percentage of revenue were 39% compared to 44.8% in the same period last year and compared to 41.9% last quarter.
Avigilon has now surpassed expectations in the last four out of five quarters, with this quarter being another significant beat.
Consensus expectations were calling for EPS of $0.21, so this result is far better.
Growth at a reasonable price
At this point in time, we see the stock trading at valuations of 24 times 2017 consensus expected EPS and 18.6 times 2018 expected EPS, with an expected earnings-growth rate of 24.5% in 2017 and 27.6% in 2018.
With an accelerating EPS growth rate, rising margins, and healthy cash flow generation, this company and its shares are looking really good again.
Given the beat this quarter, we can expect estimates to be increased and the stock to rally off this.
Finally, looking ahead to the full-year results, management has updated its guidance to reflect slightly weaker than expected revenue but better than expected profitability.
As such, management expects 2017 revenue of between $400 million and $410 million from prior guidance of $390-425 million and better than expected EBITDA, with an adjusted EBITDA margin of between 17% and 19% from the previous range of between 13% and 17%.
Going forward, the company’s software and patent portfolio is the higher-margin opportunity for Avigilon which will become an increasingly larger percentage of revenue.
Enjoy the ride.