Sierra Wireless (TSX:SW)(NASDAQ:SWIR) is an intriguing stock option that continues to attract a lot of attention from investors. The IoT pure-play stock recently provided a dismal quarterly update, which led to a double-digit sell-off on the stock. Despite that heavy sell-off, Sierra still poses a significant long-term advantage to investors, and the recent stock price drop represents a unique opportunity for investors to buy in on the low.
But is that long-term potential as promising and appealing as it appears to be?
Let’s talk about those numbers
The source of Sierra’s recent stock price plunge has its roots further back than the latest set of dismal results. In that most recent update, Sierra reported weaker-than-expected revenue numbers, which included a whopping 14.5% drop over the same quarter last year. As a result, revenues topped just US$174 million, while GAAP earnings came in at a US$20.2 million loss, equating to an equally dismal US$0.56-per-share loss.
By way of comparison, analysts were expecting Sierra to report revenues of US$191 million and adjusted earnings to come in at a much higher US$0.11 per share, while in the same quarter last year Sierra posted US$203.4 million.
Also, note that GAAP results lump in restructuring or acquisition-related costs, which are not the norm. On a non-GAAP report, the results are much improved but still not stellar — net income of US$1 million, or $0.03 per share.
Sierra provided updated financial guidance during its quarterly update. Full-year revenue is now expected to come in between US$708 million and US$712 million. This would place revenue 10% lower than it was in 2018.
Here’s why Sierra may still be a great investment
Casting those results aside for a moment, there is still a lot of long-term potential for investors of Sierra. First and foremost, let’s remember that we are talking about Sierra — a company that has become synonymous with the growing and lucrative IoT segment of the market. Pundits have long predicted that the market would swell to include billions of devices and billions more in revenue. Whether or not that will pan out remains to be seen, but one thing is certain: there are a lot of IoT connected devices on the market today and countless more planned.
In fact, most of that incredible growth potential is going to come from segments of the economy that were in their infancy only just a few years ago. Specifically, I’m referring to the road towards autonomous driving. Sierra has forged agreements with automotive manufacturers in the past, and an increasing need for connected vehicles will spur further integration (and revenue) over the next few years.
Sierra has potential but has more risk at this point. Disappointing results have weighed down on the stock heavily to the point that Sierra is arguably undervalued. Whether this translates into a buying opportunity for value-minded investors depends on your individual risk tolerance.
If Sierra is too risky, there are other investment options to consider, many of which will provide higher returns in the short term.
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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.