TPS Trade Alert – October 24, 2013

| October 24, 2013
October 24, 2013
Buy Lantronix (NASDAQ: LTRX) up to $1.58 per share.Trade Rationale:Some analysts estimate the number of devices connected to the Internet at 15 to 20 billion.  In other words, there are substantially more machines on the Internet than people using the Internet.

What’s more, Cisco Systems (CSCO) estimates by 2020, the number of connected devices will reach 50 billion!  That works out to something like six devices for every person on the planet.

Here’s the thing…

One of the largest growing segments of the tech sector is machine-to-machine technologies or M2M.  It’s a field consisting of technologies such as remote access to and management of devices and machines.

The M2M market is already sizeable, given the amount of devices on the Internet. However, it’s only going to grow bigger as people rely more and more on devices and the Internet.

That’s why we feel Lantronix (NASDAQ: LTRX) makes a great addition to our portfolio.

LTRX is a global provider of smart networking and communications solutions for M2M applications.  The company‘s products enable machines, devices, and sensors to be securely accessed, managed, monitored, and controlled.

Lantronix’s products and services are applicable across several industries.  These include security, industrial and building automation, transportation, energy, retail, financial, government, consumer electronics, medical, and IT.

Here are a couple examples of how LTRX benefits clients…

LTRX’s xPico Wi-Fi products can be used for mobile management of home systems, for example a heating system.  For instance, a technician can use a tablet (such as an iPad) to securely access a heating (or cooling) system to review, manage, and control the system remotely.

The benefits of a product/service such as this are reduced costs (no home visit by technician) and improved accuracy (would be challenging over the phone without access to the system).

Another example is the company’s xPrintServer.  The product allows any mobile device to be able to connect to a network printer.  So, a store using a tablet for point-of-sale activities could easily send a receipt, label, etc. to a store printer.

It’s another case of improving efficiency and accuracy at a retail business – and therefore improving the bottom line.

As you can see, LTRX is in a field which should be growing like crazy over the next few years.  Its products will be undeniably helpful to businesses, especially as technology become increasingly mobile-centric.

Looking at the financials, Lantronix is in reasonable shape.

In the most recent quarter, LTRX generated $11.1 million in revenue, down $485,000 from the previous year’s quarter.  The decline was due to a drop in sales of mature products. But, it was partially offset by new product sales (such as the products I described earlier).

The company posted a non-GAAP net loss of $665,000 for the quarter, compared to net income of $351,000 the year prior.  However, the difference is attributable to the roll out of newer (and more exciting) products, as mature products see decreasing demand.

On the balance sheet side of things, the company has $5.2 million in cash and just paid off all its debt this past month.  In addition, current assets are 1.9x current liabilities.

The company is projected to be profitable next year, with at least one analyst projecting a 180% increase in profits.

Nevertheless, LTRX shares are currently trading at just 0.44x sales and 1.0x book value.  A tech company trading at a price to sales ratio that low is absurd (competitors are trading at over 2x sales).  Plus, any time book value is near 1x or below, it’s safe to say the stock is cheap.

Given how cheap the shares are now, and how exciting the M2M industry is, we believe now’s the time to add LTRX to your portfolio.

Remember to use limit orders when placing your trades.  And stick to your position sizing rules.

Key Facts:


Company: Lantronix
Ticker: LTRX
Recent Price: $1.38
Market Cap: $20.1 million
Avg. Daily Volume: 51,817 shares





Category: TPS Trade Alert

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