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Oct
15
Sangoma Technologies stock price has lots of room to run
Posted by: Gerry Wimmer
10/15/2017
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TOP IDEAS: Sangoma Technologies Corp. (TSXV: STC) still has tremendous upside potential for small cap investors given its thrifty market valuation, revenue growth, profits and outlook.




Investorfile's share price accumulation target of $0.40 for Sangoma Technologies Corp. was reached on April 24, 2014. For the record, we do not revise share price targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.


This is the third Investorfile blog post highlighting Sangoma Technologies Corp. (TSXV: STC - C$0.75) this year. Given the Company’s fiscal 2017 results and financial guidance for fiscal 2018, this stock continues to deserve our attention.

Sangoma Technologies delivers Unified Communications solutions for SMBs, Enterprises, OEMs, Carriers and service providers. The Company’s scalable offerings include both on-premises and cloud-based phone systems, telephony services and industry-leading Voice-Over-IP solutions which, together, provide seamless connectivity between traditional infrastructure and new technologies. Sangoma's products and services are used in leading PBX, IVR, contact centre, carrier networks and data communication applications worldwide.

Unified Communications (UC) is a fast-growing market within the telecommunications industry. UC implies the integration between modes of communications like text messages, cell phone, emails, conference calls, instant messaging, screen sharing, etc., as well as being able to switch effortlessly between them to enhance the exchange of information and ideas for a business operation.

Last week, Sangoma Technologies released annual results for fiscal 2017. Sangoma reported that revenues jumped 27% in fiscal 2017 to C$26.9 million. For this fiscal year, EBITDA almost doubled to C$2.6 million with much higher net earnings at C$800 thousand or C$0.023 on a per share basis. Adjusted cash flow from operations of $2.89 million was up 75% from the $1.67 million in fiscal 2016. The results exceeded the Company’s financial guidance.

In our blog post one year ago (See: Sangoma Technologies transformation makes it bigger and better for a profitable 2017), we identified the positive impact that the Company’s acquisitions are having on revenue growth, operating leverage and profitability.

Since that post, Sangoma had made two additional acquisitions. Of particular note is the acquisition of VoIP Supply LCC (closed on July 1), which is expected to add about C$15 million to the Company’s revenue base. With the inclusion of VoIP, the Company-provided financial guidance for fiscal 2018: Revenues of C$46 million and EBITDA of C$4 million. Therefore revenues and EBITDA are projected to be significantly higher than last year.

Year-to-date, Sangoma Technologies' stock price is up 97% and 257% since the Investorfile blog first recommended this stock (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth) as one of its Top Ideas. That said, we think that the stock price of Sangoma still has tremendous upside potential for small cap investors.

Here are three reasons why:

1. Sangoma’s stock valuation is still very cheap for a growth company.
Based on the Company’s revenue and EBTIDA guidance for fiscal 2018, Sangoma’s stock trades at Enterprise Value (EV) / EBITDA ratio at about 6.25 times and at a multiple which is equal to only 55% of its annual revenue base.

2. Expect more acquisitions to accelerate growth.
Over the last several years the Company has made five acquisitions, and each has been accretive to growing revenues and profits. Sangoma still maintains a strong balance and has the available liquidity to make more acquisitions.

3. The Company’s market capitalization will be on the rise.
As Sangoma’s market capitalization grows higher, it will begin to attract a wider investor audience. At that point, more institutional investors will buy the Company’s stock, which will drive up share valuation and trading multiples.

Of note, we are not the only one that who thinks Sangoma’s stock is still a good buy. Beacon Securities, which initiated research coverage on the Company earlier this year, has a 12-month target price of C$1.55. Their opinion on the stock price implies 106% upside potential from current trading levels.

The Company has approximately 33.5 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 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 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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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!