TPS Trade Alert – February 17, 2015
Recommendation:
Buy Smart Technologies (NASDAQ: SMT) up to $1.50 per share.
Trade Rationale:
It seems like there’s always some kind of debate raging about education. How do we find good teachers? What kind of testing should kids endure? How much should college cost? And so on…
One of the latest topics on education revolves around technology. How much technology should there be in a classroom? Is a high-tech classroom better for learning, or is it a distraction? Should elementary school kids be learning on an iPad, or with pencil and paper? You get the picture.
As education tech becomes more advanced and widespread, it’s becoming a bigger deal for schools across the US (and the rest of the world).
One thing’s for sure… the market for education technology is huge.
Analysts expect K-12 education tech spending to be $30 billion a year worldwide by 2016. Nearly $6 billion of that is forecast to be spent on education software alone.
Whether or not you agree with using technology in the classroom, the fact is it’s happening. The massive amount spent on education tech, plus the projected growth, can’t be ignored.
We’re going to capitalize off this growth by investing in Smart Technologies (NASDAQ:SMT).
SMT is a global leader in interactive technology products for education and business. The company’s products include interactive large format displays, collaboration software, and services enabling interactive, engaging, and productive teaching, learning, and work experiences in school and workplace settings.
Basically, SMT is using technology to take the classroom experience into the 21st century. The company has also set its sights on the business world, but education is its largest business sector at the moment. (80% of revenue comes from education currently.)
If you’ve been into a classroom recently, there’s a good chance you’ve seen an SMT product. In fact, the company has an installed base of over 2.8 million classrooms. Many teachers are utilizing the SMART Board, which is an interactive whiteboard (and involves a projector).
Here’s the thing…
SMT has already moved to the next generation of interactive displays. They’re now pushing interactive flat panel screens – essentially huge touch screens that require no projectors.
The company is in good shape when it comes to replacing old technology. They’re easily the leader in education interactive displays. No other company has even half the installed base.
But perhaps more importantly, the company has recently launched a product which could make an enormous impact in the corporate meeting room.
Just launching this year is the SMT’s SMART kapp product – what the company dubs as the 21st century whiteboard. The market space is long overdue for new technology.
In North America, UK, and Germany, there are over 20 million meeting rooms which could benefit from the new tech. The SMART kapp provides instant capture of dry-erase inking and sends it to mobile devices. Basically, it’s an advanced digital dry-erase board. And it could do wonders for the company’s top line in the coming months.
Financial speaking, SMT has two major areas it needs to address, revenue growth and debt.
The company has seen revenue declines with the maturing of the interactive display market. However, the introduction of interactive flat screens and SMART kapp products should help spark revenue growth.
Regarding debt, the company has $169 million in debt versus $74 million in cash. Around $100 million of that is a bank loan not due until 2018. The rest are capital lease obligations. Between the company’s cash flow and cash position, I don’t see debt as a long-term issue.
Best of all, the headwinds the company is facing has pushed the share price into insanely cheap territory.
The stock is trading at just 5.5x earnings and 0.3x sales. No matter how you slice it, that’s cheap.
Given SMT’s new products, strong recurring revenue, and ultra-cheap stock price, now is the time to add the shares to your portfolio.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Smart Technologies |
| Ticker: | SMT |
| Recent Price: | $1.31 |
| Buy Up To Price: | $1.50 |
| Market Cap: | $159 million |
| Avg. Daily Volume: | 124,050 shares |
Chart:
Category: TPS Trade Alert
