Is very conservative and the author of The Successful Investor newsletter.
He rarely recommends buying or holding small cap stocks so this is a solid endorsement. GLTA
Penny Stocks: BSM Technologies positions itself for growth
An acquisition and better sales for existing devices have increased revenue for the leading GPS provider.
BSM TECHNOLOGIES INC. (symbol GPS on Toronto; www.bsmwireless.com) makes equipment and software that helps owners of truck, train and other fleets monitor their vehicles using global positioning systems (GPS).
Customers typically purchase the hardware upfront, and then enter into a long-term contract for software updates and monitoring services. Recurring revenue from those service contracts provide two-thirds of BSM’s total revenue.
The U.S. accounts for 68% of its sales, followed by Canada (30%) and other countries (2%).
BSM’s revenue jumped 327.2%, from $13.8 million in 2012 to $59.0 million in 2016 (fiscal year end September 30).
That gain is mainly because the company acquired Webtech Wireless for $49.9 million in cash and stock on September 30, 2015. Webtech makes software that compiles and analyzes GPS data. The transaction nearly doubled BSM’s annual revenue.
As a result of the merger, the company’s shareholders wound up with 51% of the company; Webtech investors own the remaining 49%.
Due to various writedowns, BSM’s earnings were more erratic, rising from $0.05 a share (or a total of $1.5 million) in 2012 to $0.29 a share (or $9.5 million) in 2013. Earnings then plunged to $0.01 a share (or $330,000) in 2014, and to nil per share (or $20,000) in 2015. Due to the Webtech purchase, earnings jumped to $0.09 a share (or $7.6 million) in 2016.
<h3>Penny Stocks: Acquired Mobi Corp. for $8.0 million</h3>
In October 2016, BSM bought Mobi Corp. for $8.0 million U.S. in cash plus potential future payments based on profits. Those payments could rise as high as $17 million U.S. Mobi is a privately held software provider offering products that use GPS data and analytics to let its customers better manage operational activities such as planning, scheduling, routing and dispatch.
BSM’s revenue in its fiscal 2017 first quarter, ended December 31, 2016, rose 17.0%, to $18.4 million from $15.7 million a year earlier. The gain was a result of an increase in subscribers thanks to the Mobi acquisition. Sales of the company’s GPS devices also rose.
BSM lost $465,000 in the quarter, down from $505,000 a year earlier. At $0.006, losses per share were unchanged. Cash flow was $0.03 a share in the latest quarter, up from $0.015.
Research costs rose 28.0%, to $3.0 million (or a high 16.4% of revenue) from $2.4 million (15.0%) a year earlier.
The company holds cash of $16.5 million, or $0.20 a share. Its long-term debt of $8.0 million is a low 6.5% of its market cap.
BSM earnings will likely jump from $0.03 per share in fiscal 2017 to $0.06 per share in fiscal 2018. The stock trades at 28.2 times the 2018 forecast.
The company has some speculative appeal. Demand for GPS monitoring services is growing fast as the technology helps businesses cut their costs. Moreover, many of BSM’s clients are reluctant to switch providers due to the difficulty of transferring their data to a new platform. That should allow the company to hold on to its current customers while adding new ones. BSM’s clients now include six of the seven North American class I railroads (such as CN Rail, CP Rail and Norfolk Southern) and dozens of class II and class III railroads.
The company’s growing customer base and small size enhances its appeal as a takeover target. However, investors should treat that as a bonus, and not the sole reason to invest.
TSI Network recommendation: BSM Technologies is okay to hold for aggressive investors.