Quantenna Communications Is Ideal for a Takeover
If you are looking for battered-down technology stocks with great risk-to-reward trade-offs, a small-cap technology play that is worth a deeper look is Quantenna Communications Inc (NASDAQ:QTNA).
QTNA stock is at the midpoint of its post-initial public offering (IPO) range following its debut at $16.00 on October 28, 2016 and high of $25.45 in March 2017.
On the price chart, Quantenna Communications stock is hovering around its 50-day and 200-day moving averages. An upside move could drive QTNA stock back towards $25.00 and above $30.00.
In my view, the sell-off is overdone, given the strong growth and expectations going forward for Quantenna Communications in the rapidly changing Wi-Fi space.
The global Wi-Fi market was $14.8 billion in 2015 and could expand to $33.6 billion by 2020. (Source: “Global Wi-Fi Market worth 33.6 Billion USD by 2020,” MarketsandMarkets, last accessed June 8, 2017.)
Chart courtesy of StockCharts.com
The tailwinds appear ripe for Quantenna Communications stock as the demand for faster and broader Wi-Fi solutions picks up steam.
Simply think back to the 1990s, when Internet users relied on the often slow and cumbersome dial-up connection, compared to the current 3G and 4G speeds.
With the demand for bandwidth and fast connections accelerating, Quantenna Communications should find strong demand for its advanced Wi-Fi hardware and software solutions.
The company has developed a staggering 10G Wi-Fi technology code named “QSR10G Wave 3,” which Quantenna Communications believes is currently the fastest. (Source: “Quantenna Announces World’s First 802.11ac 10g Wave 3 Wi-Fi Product Line,” Quantenna Communications Inc, September 9, 2015.)
My Fundamental Bull Case for QTNA Stock
Revenues have increased in two straight years, and the positive trend is expected to continue into 2017 and 2018 as shown in the table below.
Quantenna Communications Revenues
|2017||$182.93 million (Estimate)|
|2018||$239.41 million (Estimate)|
(Source: “Quantenna Communications, Inc. (QTNA),” Yahoo! Finance, last accessed June 8, 2017.)
You will notice the revenue growth for QTNA stock is slated to decline from 55% in 2016 to 41.7% in 2017 and 30.9% in 2018, but don’t be alarmed. Growth rates tend to normalize to lower levels as a company grows.
The ability of management to control the cost side is reflected by the rising gross profits and the fact that gross margins have held at around 50%.
The result has driven Quantenna Communications to report adjusted profits beginning in 2016.
If all goes according to plan, Quantenna Communications stock could earn $0.27 per diluted share in 2017 (up 585% year-over-year) and ratcheting to as high as $0.92 per diluted share in 2018. (Source: Ibid.)
The price-to-earnings multiple could fall to 20.7-times the high estimate for 2018, which is attractive. QTNA stock may deserve a higher multiple, which could help drive the share price higher. For instance a multiple of 30-times implies a forward price of $30.00.