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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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.