I.D. Systems Stock: Play the High-Growth M2M Segment with this Micro-Cap

ID Systems Stock
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I.D. Systems Has Lofty Ambitions in Machine-to-Machine Technology

The recent selling capitulation in higher-beta technology stocks should not be viewed as a reason to exit the risk on trade, but rather an aggressive opportunity to enter.

My investment strategy is not based on the real-time trading of a stock, but on whether the underlying fundamentals support a higher stock price.

An intriguing micro-cap technology stock with high-risk/high-reward prospects is I.D. Systems, Inc. (NASDAQ:IDSY), which held up fairly well during the recent selling.

IDSY stock is trading 23% below its February high of $8.05 and is worth a look for the risk trader.

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I.D. Systems focuses on the development of wireless machine-to-machine (M2M) technologies that enable devices to communicate with each other.

The company’s M2M solution used hardware, cloud-based software and big data solutions to secure and manage a company’s critical assets.

The applications are broad and include automakers, consumer packaged goods, food producers, industrial manufacturers, retailers, airlines, car rentals, and the government.

The IDSY stock chart displays the numerous breakouts starting in 2016 in a nice upward trend to the high in February 2018 prior to the subsequent selling.

I.D. Systems is currently below its 50-day and 200-day moving averages but managed to find recent buying support at around $5.25.

As long as IDSY stock can hold in the current sideways channel, we could see a move toward the $7.00 resistance level and a renewed attack at $8.00.

Chart courtesy of StockCharts.com

My Bull Thesis for IDSY Stock

A look at the past five years of revenues doesn’t reflect that well for I.D. Systems, as revenues have done very little.

Fiscal Year Revenue ($ Millions) Growth
2013 $39.95
2014 $45.63 14.24%
2015 $41.78 -8.43%
2016 $36.82 -11.88%
2017 $40.96 11.23%

(Source: “I.D. Systems Inc.,” MarketWatch, last accessed October 19, 2018.)

The good news is that I.D. Systems is expected to get its act together and deliver stronger revenue growth.

Revenue growth is projected at 27.7% to $52.3 million in 2018 and 13.5% to $59.36 million in 2019. (Source: “I.D. Systems, Inc. (IDSY),” Yahoo! Finance, last accessed October 19, 2018.)

While I.D. Systems sorts out its revenue picture, the company has done pretty well in narrowing its earnings before interest, taxes, depreciation, and amortization (EBITDA) and losses.

Fiscal Year EBITDA ($ Millions) Growth
2013 ($6.19)
2014 ($9.91) -60.08%
2015 ($9.23) 6.87%
2016 ($4.61) 50.04%
2017 ($3.35) 27.25%

(Source: MarketWatch, op cit.)

I.D. Systems is losing money on a generally accepted accounting principles (GAAP) and adjusted basis but the GAAP loss has also been narrowing.

Fiscal Year GAAP Diluted EPS Growth
2013 ($0.63)
2014 ($0.96) -52.38%
2015 ($0.79) 17.71%
2016 ($0.49) 37.97%
2017 ($0.26) 46.94%

(Source: MarketWatch, op cit.)

IDSY has managed to grow its EBITDA and GAAP earnings at a higher rate than the comparative revenue growth rate from 2015 to 2017.

Moreover, I.D. Systems is expected to turn an adjusted profit of $0.02 per diluted share this year and ramp it up to a consensus $0.25 and as high as $0.45 per diluted share in 2019. (Source: Yahoo! Finance, op cit.)

Analyst Take

If I.D. Systems can deliver its high estimate for 2019, the forward valuation of 13.82 times would represent a good opportunity.

Insiders at IDSY appear to be on board, buying 290,899 shares during the past six months and divesting only 62,662 shares. (Source: Ibid.)