Lantronix Inc: Micro-Cap IoT Stock Can Double & Still Look Cheap

Lantronix Inc: Micro-Cap Tech Stock Can Double and Still Look AffordableLantronix Inc Looks to Break Out on Higher Revenue Growth 

We all know the Internet of Things (IoT) market holds tons of opportunities for software and hardware companies. The tailwinds in the IoT segment are massive and could propel small micro-cap stocks like Lantronix Inc (NASDAQ:LTRX).

With a market cap of $76.0 million, Lantronix is small, but I like the company’s involvement in the IoT market. Plus the company has been growing its revenues and it is profitable. Lantronix has also delivered positive free cash flow.

The company provides secure data access and management solutions to companies in their IoT strategies in the areas of security, management, and mobility.

Its clients operate in sectors including data center, medical, security, industrial, transportation, retail, financial, energy, environmental, and government.

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Lantronix stock has traded in a sideways channel for the past year, but it appears set for a breakout on the chart.

Upper resistance levels for LTRX stock are $3.45, $3.79, and $4.25. A break could see the stock move back toward $6.00, almost doubling its current price.

Chart courtesy of StockCharts.com

The major downside risk is around $3.00, so we have a decent risk/reward situation with Lantronix stock.

Higher Revenue Growth and Profitability Bodes Well for LTRX Stock

A glance at Lantronix Inc’s five-year revenue picture shows nothing special, despite three straight fiscal years of growth.

Fiscal Year Revenues (Millions) Growth
2015 $43.0
2016 $40.6 -5.5%
2017 $44.7 10.2%
2018 $45.6 1.9%
2019 $46.9 2.9%

(Source: “Lantronix Inc.” MarketWatch, last accessed December 9, 2019.)

The company’s revenue outlook is encouraging. Lantronix is estimated to grow its revenues 15.1% to $54.0 million in fiscal 2020 and then another 10.7% to $60.0 million in fiscal 2021. (Source: “Lantronix, Inc. (LTRX),”Yahoo! Finance, last accessed December 6, 2019.)

Lantronix also generated positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the last three years, including a record $1.8 million in fiscal 2019.

Fiscal Year EBITDA Growth
2015 -$1.6 Million
2016 -$574,000 63.2%
2017 $657,000 214.5%
2018 $1.7 Million 160.9%
2019 $1.8 Million 5.4%

(Source: MarketWatch, op. cit.)

LTRX has largely reported generally accepted accounting principles (GAAP) earnings-per-share (EPS) losses, but it delivered positive GAPP diluted EPS in fiscal 2018.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.19
2016 -$0.13 31.6%
2017 -$0.02 84.6%
2018 $0.04 277.5%
2019 -$0.02 -153.2%

(Source: MarketWatch, op. cit.)

The consistency has been missing, but things appear to be changing for Lantronix Inc.

LTRX is expected to report adjusted earnings of $0.19 per diluted share in fiscal 2020, followed by $0.29 (or as high as $0.32) in fiscal 2021. (Source: Yahoo! Finance, op. cit.)

Lantronix managed to record positive free cash flow (FCF) in fiscal 2017 and 2018, prior to slipping in fiscal 2019. The fact that a company as small as LTRX can generate positive FCF is impressive, and this could grow, given the expected revenue and earnings jump.

Fiscal Year Free Cash Flow  Growth
2015 -$2.2 Million
2016 -$357,000 83.9%
2017 $1.8 Million 614.3%
2018 $280,000 -84.8%
2019 -$2.6 Million -1,042.5%

(Source: MarketWatch, op. cit.)

Analyst Take

The bull case for LTRX stock is supported by the fundamentals and expected growth that could accelerate, given the demand for IoT applications.

The forward multiple is attractive if Lantronix Inc can deliver on its financial estimates. Trading around 10 times its high EPS estimate for fiscal 2021, and with a price/earnings to growth (PEG) ratio below one, LTRX stock looks cheap and could be primed for a major move.