TOP IDEAS - NEW: DDS Wireless (TSX:DD) is worth well over $3/share but trades under $2/share and the fundamentals are very compelling.
We are off to the races at Investorfile.com to dig deep for small cap value and we found it in DDS Wireless International, a growth company.
Listed on TSX:DD, the current stock price ($1.70) for this mobile wireless solutions provider for fleet management (taxi, transit and commercial) is cheap, really cheap!
But DDS Wireless International is no two-bit company, with 225 employees worldwide, based in Richmond, BC.
Start with the balance sheet: cash of $7 million or $0.51/share (from Q3 conference call) and growing, over $13.5 million in net working capital and no debt. Yes, no debt!
OK, DDS Wireless has a very strong balance sheet, but is the Company growing? You bet it is.
In the first nine months of 2011, sales are up 19% to $33.2 million. Recently the Company reconfirmed its 2011 sales guidance of greater than $45 million; therefore Q4 sales are expected to be at least $12 million. Herein lies the bonus: about 50% of DDS sales are recurring and margins on sales are high (average 45-50%). DDS has also reported 14 consecutive quarters of growth in sales year-over-year.
In Q3, DDS earned $3 million of EBITDA (24% of sales) and $0.11 EPS. Given the Company’s sales guidance, Q4 earnings should be strong too. DDS is generating lots of free cash flow.
With its 12-month trailing EBITDA of $7.2 million, DDS stock should command at least 5x enterprise value (EV) to EBITDA valuation ratio which implies this stock should trade closer to $3.25 per share (1x sales) based on the Company’s historic results alone.
In my view, for value-driven small cap investors, DDS stock should be accumulated up to $3.25 per share from its current trading levels of under $2.00 per share. I note that a high-tech growth company like DDS Wireless could fetch a valuation greater than $5.00 per share.
DDS has only 13.8 million shares outstanding and management owns 56%. These are all good signs for investors.
In a future blog post I will summarize the Company’s operations and growth possibilities.
DDS website: www.ddswireless.com.
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Disclosure: TSX: DD - Long
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This article is for informational purposes only. This article is based on the author’s independent analysis and judgment and does not guarantee the information’s accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.
Investorfile.com is not engaged in an investor relations agreement with DDS Wireless International Inc. nor has it received any compensation from DDS Wireless International Inc. for the preparation or distribution of this article.
The author of this article has acquired and may trade shares of DDS Wireless International Inc. through open market transactions and for investment purposes only.
