WidePoint Corporation: A Tiny Contrarian Mobile Play With 70% Upside

WidePoint Corporation: A Tiny Contrarian Mobile Play With 70% UpsideA Nanocap Tech Stock With High Risk/Reward Potential

Two of the top growth areas in technology will continue to be mobile communications and the Internet of Things (IoT), especially with the aggressive expansion of 5G technology.

While the financial media generally loves to talk about the biggest players in these segments, I also like to present opportunities in stocks that trade under the radar of Wall Street.

Take the case of WidePoint Corporation (NYSE:WYY), which I believe provides an aggressive risk/reward opportunity to make big returns. In terms of the tech industry, the company is tiny, with a market valuation of a mere $82.0 million.

WidePoint stock is trading 45% below its 52-week high of $15.89 in November 2020 and its record high of $23.00 in July 2015.

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The company provides managed mobility services, telecommunications lifecycle management, and cybersecurity solutions to enterprises and government.

WidePoint seems ideally suited for the next generation of mobile communications, especially with 5G picking up.

Given the massive potential and the fact that WidePoint Corporation has been delivering strong fundamentals, WYY stock should be much higher.

WYY Stock Could Jump 70%

The following chart shows WidePoint stock drifting at a key support level and threatening to break lower toward the next support level around $7.00.

A move toward the $7.00 level would be an opportunity to consider WYY stock.

Chart courtesy of StockCharts.com

The upside potential is $10.00 to $12.00, followed by $15.00, representing a move of about 70%. The downside risk is about 20%, which translates into a compelling risk/reward opportunity.

Strong Fundamental Growth, But Some Obstacles Ahead

WidePoint Corporation’s revenue picture shows strong growth over the past three years, including a jump of 77.3% to a record $180.3 million in 2020.

The compound annual growth rate (CAGR) of 23% over the past five years is impressive for WidePoint.

Fiscal Year Revenues (Millions) Growth
2016 $78.4 N/A
2017 $75.9 -3.2%
2018 $83.7 10.3%
2019 $101.7 21.6%
2020 $180.3 77.3%

(Source: “WidePoint Corp.” MarketWatch, last accessed May 3, 2021.)

Looking ahead, there are some concerns, which have impacted the price of WidePoint stock. The company is expected to see its revenues contract by 34.8% to $117.7 million this year, followed by 3.4% growth to $121.7 million in 2022. (Source: WidePoint Corporation (WYY),” Yahoo! Finance, last accessed May 3, 2021.)

WidePoint has managed to generate strong earnings before interest, taxes, depreciation, and amortization (EBITDA) growth from 2018 to a record $4.9 million in 2020.

Fiscal Year EBITDA (Millions) Growth
2016 -$2.6 N/A
2017 -$1.9 -24.3%
2018 $1.1 156.7%
2019 $2.8 150.4%
2020 $4.9 73.7%

(Source: MarketWatch, op. cit.)

WidePoint Corporation turned a profit in the last two years, including a record $1.20 per diluted share in 2020. Those results are based on generally accepted accounting principles (GAAP) earnings per share (EPS).

Fiscal Year GAAP Diluted EPS Growth
2016 -$0.50 N/A
2017 -$0.43 14.8%
2018 -$0.17 58.9%
2019 $0.03 115.4%
2020 $1.20 4,360%

(Source: MarketWatch, op. cit.)

On a non-GAAP or adjusted basis, WidePoint Corporation earned only $0.10 per diluted share, but this is expected to nearly double to $0.19 this year and to $0.30 in 2022. (Source: Yahoo! Finance, op. cit.)

Another encouraging metric is the company’s positive free cash flow in three of the last five years, to a record $6.1 million in 2020.

Fiscal Year Free Cash Flow (Millions) Growth
2016 $2.4 N/A
2017 -$3.7 -251.1%
2018 -$2.4 35.0%
2019 $5.5 328.9%
2020 $6.1 11.8%

(Source: MarketWatch, op. cit.)

 Analyst Take

The fact that WidePoint Corporation is profitable and generates positive free cash flow despite its small size is impressive.

While there’s concern about the company’s revenue outlook, consider that WidePoint still trades at only 0.66 times its consensus 2022 revenue estimate.

Even if WYY stock doubled in price, the valuation would still be reasonable. My view is that the stock market is significantly underpricing WidePoint stock, so it’s a good time to look at it.