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Feb
23
Sangoma Technologies delivers on revenue growth and profits
Posted by: Gerry Wimmer
2/23/2014
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TOP IDEAS: New product sales support Sangoma Technologies Corp. (TSXV: STC) turnaround. Stock up 55% in 2014, with more to come.

Last year Sangoma Technologies’ (TSXV: STC - $0.325) management team was preaching its turnaround vision to shareholders: That the anticipated revenue growth (from sales of new products developed) and controlled but targeted spending will lead to a healthy bottom line. Judging from the Company’s latest quarterly report, this vision has become reality.

Sangoma reported that sales for the second quarter of fiscal 2014 were $3.63 million, up 32% from both the same quarter last year in fiscal 2013 and from the preceding quarter in the current fiscal year. More importantly as Sangoma’s Management envisioned, all the sales growth reported was being generated from the Company’s new products.

Sangoma is a leading provider of hardware and software components that enable or enhance Internet Protocol (IP) Communications Systems for both telecom and datacom applications. With more devices, networks, clouds and systems needing to interoperate, the Voice over Internet Protocol (VoIP) communications landscape continues to grow in complexity. To be a stronger competitor, the Company embarked on internal build out of their product portfolio during the past 12-24 months. As such, the Company had accelerated the rate of new product introduction and released many more products (21) to the market than in prior years.

Sangoma has progressed from a company that had historically released few new products each year, to a company capable of delivering multiple new offerings annually in growing markets, Management has said. Plans are for IP Communications product offerings in all the following categories: wireless, optical networks, social, video and cloud. To sell the new products the Company has increased its investment in sales to target all key geographic regions and to address opportunities with larger customers such as telecom carriers and OEMs.

The recent growth in sales has translated into profits. For the second quarter of fiscal 2014, Sangoma reported EBITDA of $430,000 compared to a loss in the prior year quarter. The Company had a net income of $220,000 or approximately $0.01 per share in earnings in Q2. Given the Company’s strong product gross margins (67%) and tight control of expenses, further sales increases are expected to have a very positive impact on future earnings growth.

We first recommended the purchase of Sangoma shares as one of our Top Ideas for small cap value investors less than 2 months ago (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth). Since then, the Company’s stock price has jumped 55%.

But the recent quarterly results only reinforce the value proposition of this Company’s stock from its current trading levels. Therefore we suggest small cap investors should continue to accumulate Sangoma’s stock up to a price of $0.40 to capture additional appreciation potential. Should the Company’s sales growth momentum continue to accelerate so will Sangoma’s stock price to higher levels beyond $0.40 for greater capital gains.

The Company continues to preserve its strong balance sheet; holding $4.34 million in cash without any bank or long-term debt.

Sangoma Technologies has 28.8 million shares outstanding.

Sangoma Technologies website: www.sangoma.com

Author Ownership Disclosure: TSXV: STC - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgement and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Sangoma Technologies Corporation nor has it received any compensation from Sangoma Technologies Corporation for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Sangoma Technologies Corporation through open market transactions and for investment purposes only.

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Comments:
Posted by: Jon
Gerry, another great small cap stock pick in Sangoma Technologies (TSXV : STC) reaching your price target in only four months. My bet, like most of your small cap picks that this stock is going higher in the months to come.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.