Pointer Telocation Stock Could Double for Contrarian Investors
Pointer Telocation Weakness Provides Opportunity
There are not many highly profitable micro-cap technology growth stocks not trading at near their 52-week highs, but that’s the situation with Israel-based Pointer Telocation Ltd (NASDAQ:PNTR).
With a market cap of a mere $96.0 million and delivering decent growth metrics, it’s worth a closer look for risk capital.
Pointer Telocation operates in the emerging growth area referred to as mobile resource management (MRM), which is the technology used to manage mobile assets.
The company’s MRM cloud-based platform is employed by companies to collect data from mobile assets and create big data analytical reports. The technology is increasingly used in the connected vehicle market.
A key strategy for Pointer Telocation is expansion into the U.S. market, where the company has a deal to supply its “CelloTrack Nano” technology to more than 15,000 mobile devices.
The tailwinds in the MRM and fleet management segments are significant. They could drive Pointer Telocation stock much higher from the current depressed level.
The stock price is 40% below its 52-week high achieved in December 2017, down 36% this year, and down 13.5% over the past year.
The following chart shows that PNTR stock is in a downtrend after a bearish double top in October and December 2017. The initial breakout was in March 2017.
Chart courtesy of StockCharts.com
The downside risk is the 52-week low followed by a multi-year base around $8.70.
If Pointer Telocation stock can hold, we could see a rally toward resistance at $13.88 and $15.70, which would be a move of more than 32%.
The Fundamental Bull Case for PNTR Stock
Revenues have risen in two straight years in 2016 and 2017, following a 42.5% decline in 2015.
The growth of 21.5% to $78.2 million in 2017 is an encouraging sign.
|
Year |
Revenue (Millions) | Growth |
| 2013 | $97.9 |
|
|
2014 |
$105.3 | 7.6% |
| 2015 | $60.6 |
-42.5% |
|
2016 |
$64.4 | 6.2% |
| 2017 | $78.2 |
21.5% |
(Source: “Pointer Telocation Ltd.,” MarketWatch, last accessed July 13, 2018.)
Pointer Telocation is expected to continue the revenue growth, albeit at a lower rate than 2017.
Revenues are predicted to increase by 8.4% to $84.7 million in 2018 and rise by seven percent to $90.7 million in 2019, which is positive. (Source: “Pointer Telocation Ltd. (PNTR),” Yahoo! Finance, last accessed July 13, 2018.)
Also impressive is the ability of Pointer Telocation to grow its gross earnings at a faster rate than its revenues, which suggests cost control and efficiency.
| Year | Gross Earnings (Millions) | Growth |
| 2013 | $30.6 | |
| 2014 | $34.6 | 12.8% |
| 2015 | $28.7 | -16.9% |
| 2016 | $31.3 | 9.02% |
| 2017 | $39.7 | 26.8% |
(Source: MarketWatch, op cit.)
On a generally accepted accounting principles (GAAP) basis, PNTR is profitable, despite declines in its earnings per share (EPS) in 2015 and 2016. The company saw its diluted EPS surge by 372% to $2.03 in 2017.
|
Year |
GAAP Diluted EPS |
| 2013 |
$1.11 |
|
2014 |
$1.74 |
| 2015 |
$0.50 |
|
2016 |
$0.43 |
| 2017 |
$2.03 |
(Source: Ibid.)
On an adjusted basis, Pointer Telocation is expected to increase its earnings to $1.02 per diluted share in 2018 versus $0.91 per diluted share in 2017—and follow this with as much as $1.33 per diluted share in 2019.
Free cash flow is positive, growing by 34.7% to $6.7 million in 2017, and this should rise with the higher expected earnings.
|
Year |
Free Cash Flow (Millions) |
| 2013 |
$5.02 |
|
2014 |
$1.14 |
| 2015 |
$5.12 |
|
2016 |
$4.95 |
| 2017 |
$6.67 |
(Source: Ibid.)
Analyst Take
In my view, Pointer Telocation stock is cheap, given the recent and expected forward growth in revenues and earnings.
The stock is trading at only 10 times its consensus 2019 EPS and 8.9 times its high estimate.
Even if PNTR stock doubles to $24.00, the forward multiple could still be just over that of the S&P 500.
