Big Upside Ahead for This Internet of Things Stock?

Adesto Technologies Corp Big Upside Ahead for This Internet of Things Stock
iStock.com/stnazkul

Time to Check Out This Overlooked Tech Stock

Most people have never heard of Adesto Technologies Corp (NASDAQ:IOTS), but its stock could represent one of the best growth opportunities on the market.

Headquartered in Santa Clara, California, Adesto Technologies is a provider of application-specific semiconductors and embedded systems. With a market capitalization of just over $240.0 million, the company is not big enough to be mentioned in the financial media that often.

However, Adesto is well positioned to capitalize on one of the fastest growing areas in the technology sector: Internet of Things (IoT).

You see, despite being a relatively unknown name to consumers, Adesto Technologies has been providing a full stack of IoT solutions. Its semiconductor and embedded technologies help power connected IoT devices and systems used in industrial, consumer, communications, and medical applications.

Advertisement

Its end customers include well-known companies such as Garmin Ltd. (NASDAQ:GRMN), Amazon.com, Inc. (NASDAQ:AMZN), Roku Inc (NASDAQ:ROKU), and Johnson & Johnson (NYSE:JNJ), just to name a few. (Source: “Investor Presentation June 2019,” Adesto Technologies Corp, last accessed July 26, 2019.)

In this day and age, people like the tech sector mostly because of its growth. And that’s exactly what Adesto delivers.

In the first quarter of 2019, the company generated $28.1 million of revenue, marking a whopping 83.7% increase year-over-year At the same time, Adesto’s adjusted gross margin expanded 230 basis points to 49.4% during the quarter. (Source: “Adesto Technologies Reports First Quarter 2019 Financial Results,” Adesto Technologies Corp, May 7, 2019.)

The company also generated adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of $12,000.

That amount may not seem like much, but keep in mind, when it comes to IoT companies that are trying to grow their business aggressively, not all of them can achieve a positive adjusted EBITDA. Adesto has been generating positive adjusted EBITDA for eight consecutive quarters.

And the best could be yet to come. Looking ahead, Adesto’s President and Chief Executive Officer Narbeh Derhacobian said, “We continue to expect revenue growth of more than 30% in the second half of the year compared to the same period in 2018, with adjusted EBITDA margins in excess of 10% and positive free cash flow.” (Source: Ibid.)

The reality is that Adesto is facing an expanding market opportunity. Analysts have estimated that from 2018 to 2022, the IoT semiconductor industry is going to grow at a compound annual growth rate of higher than 25% to $28.0 billion. (Source: “Investor Presentation June 2019,” Adesto Technologies Corp, op. cit.)

If the company can capture just a few percentages of that future market, it would be able to earn tens of millions of dollars of additional revenue.

Adesto Technologies Corp (NASDAQ:IOTS) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

While Adesto Technologies Corp is yet to become an industry heavyweight, some investors have noticed its potential. Year-to-date, IOTS stock has surged a staggering 86%.

With high revenue growth rates, a major catalyst (the expanding IoT market), and a soaring share price, you’d probably think that Adesto stock must be expensive. But that’s not really the case.

Trading at $8.19 per share, Adesto Technologies stock has a price to sales ratio of 2.6 times. To put that in perspective, the semiconductor industry has an average price to sales ratio of 7.9 times. (Source: “Adesto Technologies Corp (IOTS.OQ),” Reuters, last accessed July 26, 2019.)

In other words, despite the massive rally in its share price, Adesto is not really an expensive stock. Adding in all that future potential, and you’ll see that this stock deserves the attention of today’s growth investors.