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Feb
8
AirIQ stock has double the upside
Posted by: Gerry Wimmer
2/8/2016
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TOP IDEAS: Revenue and profits continue to support the small cap value buy for shares in AirIQ Inc. (TSXV: IQ).



AirIQ Inc. (TSXV: IQ $0.105) is the smallest company that the Investorfile blog has ever undertaken to cover as one of its Top Ideas – Small Cap Value stocks. But that’s okay, because this Company continues to be profitable.

Last week AirIQ reported its third quarter results for fiscal 2016. In Q3 revenues grew 32% to $882,000 and EBITDA improved by 118% to $172,000. Net income for the quarter was $125,000 up 184% and the Company generated $135,000 in cash flow from operations. This is the seventh quarter in a row that AirIQ has recorded a profit since its turnaround.

AirIQ has been providing Global Positioning Service (GPS) solutions for over 15 years to customers throughout North America. The Company offers a suite of asset management services, end-to-end wireless solutions, which allows operators for fleets of delivery trucks, service vehicles and rental or company cars the ability to monitor, manage and protect their mobile assets on a simple and cost-effective basis.

Over two-thirds of the Company’s revenues are recurring from the monthly wireless airtime fees earned from the connection of AirIQ’s GPS hardware devices that are sold and installed on the mobile assets of its customers. Most of AirIQ’s airtime customers are supported by two to three-year term service contracts. The Company has a variety of customers located in both the USA and Canada.

In 2016, the GPS industry is undergoing change as most GPS solution providers for mobile assets must make the transition with their customers from 2G to 3G service, thus the termination of legacy 2G GPS units and airtime contracts. Fortunately AirIQ has been very proactive in this process. Today over 85% of the Company’s current customer base is connected and contracted for 3G service. Over the short-term, the Company’s revenue growth rate could slow as the remaining 15% of AirIQ customers make this transition. The offset: It is a great opportunity for AirIQ to win new customers who are transitioning to a 3G wireless network.

Investorfile was first attracted to AirIQ’s story (See: AirIQ is a technology company small in size but the stock is big in value) by the stock’s valuation and how the Company’s management demonstrated that it can grow its business profitably. That said, we speculate there will be more profits as the Company's revenues continue to grow over time. Recent quarterly results confirm our outlook: Within the next 12 to 18 months we believe AirIQ can reach a quarterly revenue run-rate of $1 million or $4 million annually and earn 20% EBITDA margins, totaling $800,000 annually.

Based on this financial scenario, we continue to recommend that small cap investors should accumulate the shares of AirIQ up to a price of $0.20. At $0.20 (which is almost double its current stock price) the shares would still not be overvalued, trading at less than seven times Enterprise Value (EV) /EBITDA. This is based on the Company's current capital structure.

If AirIQ continues to grow its profits we believe the stock price will exceed $0.20. With a higher stock currency there is a possibility of merger and acquisition activity and, thus, more upside for the stock price.

AirIQ has approximately 28.9 million shares outstanding.

The Company's website: www.airiq.com

Author's share ownership disclosure: IQ - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment 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 AirIQ Inc. nor has it received any compensation from AirIQ Inc. the preparation or distribution of this article.

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

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Gerry: Thanks for small cap stock suggestions over the past 5-years. Your record is very impressive and your analysis has been excellent over the years. I think small investors (and fund managers) should pay much more attention to your work. I look forward reading your blog over the next 5-years!