TPS Trade Alert – March 20, 2013
March 20, 2013
Recommendation:
Buy Iteris (AMEX: ITI) up to $2.00 per share.
Trade Rationale:
When it comes to driving, what’s the first negative thing you think of? For most people, it’s traffic. How many times have you been stuck in traffic on the way to or from work, wondering how much time you’re wasting in your automobile?
It’s common problem in America and elsewhere. Not only is traffic a big time waster, but it also wears down transportation infrastructure and adds to pollution.
However, solving the traffic problem also provides a huge business opportunity. In fact, industry researcher IBIS World projects the traffic and weather information market to reach $2 billion by 2016. That’s 38% annual growth from current levels.
Ultimately, the key is improving traffic and congestion lies with technology. And, that means the solution (and the success) could come from any size company.
Fortunately, you don’t have to go out and find that company yourself… because we already did.
Introducing Iteris (AMEX: ITI).
ITI is the leading provider of intelligent information solutions to the traffic management market. The company is focused on the development and application of advanced technologies and software-based information systems for reducing traffic congestion and providing measurement and predictive traffic analytics.
Traditionally, Iteris has focused on two major areas for their products and services. The first is video detection products and sensors. The company’s vehicle detection technologies analyze video images for a variety of uses related to traffic management and safety. These products range in use from traffic intersection control to incident detection to traffic data collection.
ITI also specializes in developing and servicing transportation systems. It provides engineering consulting services such as traffic engineering and transportation planning.
Here’s the thing…
It’s one of ITI’s more recent products that really has us excited about the company’s potential. iPerform, released in 2011, utilizes the power of big data to predict traffic conditions and deliver actionable information as a result.
iPeform uses innovative information management technology to analyze a wide range of data resources necessary to determine current and future traffic patterns and management of traffic infrastructure resources. The product is already popular with federal, state, local, and municipal organizations.
Even better, iPerform is being expanded to include incident management applications, predictive traffic, and weather-based analytics for both and commercial markets. In other words, ITI is about to increase the potential market for iPerform by a significant amount.
Essentially, ITI has the opportunity to grow business substantially moving forward. However, the company already sports strong financials.
Fiscal third quarter revenues came in at $14 million, a 6% year over year decline. However, the decline was due to delays in customer orders impacted by Hurricane Sandy. Clearly, that’s a one-time deal.
More importantly, the company’s order backlog was $38 million, a sizeable jump from last year’s $32.9 million. And, net income climbed to $1.1 million, or $0.03 per share, from $747,000 or $0.02 a share a year ago.
In addition, ITI has a sparkling balance sheet.
Cash holdings are $19.7 million compared to zero debt. Plus, current assets are 3.7x current liabilities. Make no mistake, that’s a healthy balance sheet. And, it gives ITI flexibility in adding products or making acquisitions.
Despite the robust market and strong financial numbers, ITI shares are trading at a heavy discount.
At a current price of $1.78, ITI is trading at just 1.0x book value. That means if the company was broken into pieces and sold off, it would sell at just its book value. In other words, no future income growth is being taken into account by the market.
For a company projected to grow 35% a year over the next five years, that’s a crazy low valuation. Not to mention, with a $2 billion potential market, ITI has impressive earnings potential.
Let’s buy shares of ITI while it’s trading at bargain basement prices.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Iteris |
| Ticker: | ITI |
| Recent Price: | $1.78 |
| Market Cap: | $59.3 million |
| Avg. Daily Volume: | 62,638 shares |
Chart:
Category: TPS Trade Alert
