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8
AirIQ is a technology company small in size but the stock is big in value
Posted by: Gerry Wimmer
11/8/2015
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TOP IDEAS: Once a bigger company that lost money, AirIQ Inc. (TSXV: IQ) is now making money and the stock is a value buy for small cap investors.



AirIQ Inc. (TSXV: IQ - $0.08) was once a much bigger company with over $30 million in sales. But after years of losing money and adding debt, bad acquisitions and massive equity dilution, the stock ended up trading for pennies. Today each share of AirIQ still trades for pennies, eight to be exact. What is the difference? Now eight cents buys you stock in a Company that has consolidated its shares, debt free and has a new CEO operating AirIQ to earn profits.

Based in Pickering, Ontario, AirIQ has been providing Global Positioning Service (GPS) solutions for over 15 years to customers throughout North America. The Company offers a suite of asset management services, end-to-end wireless solutions, which allows operators for fleets of delivery trucks, service vehicles and rental or company cars the ability to monitor, manage and protect their mobile assets on a simple and cost-effective basis. Services include: real-time instant vehicle locating, boundary notification, automated inventory reports, maintenance reminders, security alerts and vehicle disabling and unauthorized movement alerts.

AirIQ's hardware products are designed for the physical environment of a variety of fixed or mobile assets and are typically installed in a stealth location in the body of the asset. The Company's hardware device enables tracking and communication using satellite (GPS) technology, digitized mapping and the Internet. The hardware devices provide the user with information and control messages to and from the asset via AirIQ's Online™ system. Users can access their asset information via an Internet browser, complete with maps and detailed location information.

AirIQ earns the majority of its revenues from the sale of GPS hardware devices installed on mobile assets and from the wireless airtime fees for communication from the hardware devices (that yield recurring revenues for each device deployed) using satellite (GPS) technology. Last quarter approximately 70% of AirIQ's total revenues are recurring from the Company's airtime customers, most supported by two to three-year term service contracts, including month-to-month airtime customers. The Company has a variety of customers located in both the USA and Canada. No one customer accounts for over 10% of total revenues.

Over the years, AirIQ's has built up strong goodwill in this marketplace. The Company's longevity is primarily due to its superior customer support services.

Over the last 12-months, AirIQ's revenue base grew to over $3 million while earning on average 60% gross margins. But, more importantly, during this same 12-month period the Company had generated $450,000 (15% of revenues) of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and $297,000 of net income. In the Company's most recent quarter (Q2 of fiscal 2016), AirIQ earned $0.01 per share in earnings. The Company also has a good balance sheet with some cash in the bank and no debt.

Admittedly, AirIQ is a very small company operating in the competitive GPS industry. It is also the smallest company that the Investorfile blog has undertaken to cover as one of its Top Ideas. But the new CEO of AirIQ has demonstrated that they can grow this business profitably, even on a modest revenue base. We recognize this financial achievement and speculate there will be more profits as the Company's revenues continue to grow.

The shares of AirIQ trade today at a valuation that is under five times Enterprise Value (EV) /EBITDA, less than 10 times earnings and only at 70% of its revenues, based on the Company's 12-month trailing financial results. By all of these metrics the stock, which is currently trading at $0.08, is very inexpensive.

Looking forward we believe that within the next 12 to 18 months this Company can reach a quarterly revenue run-rate of $1 million or $4 million annually while earning 20% EBITDA margins, totaling $800,000 within a 12-month period. Under this scenario we recommend that small cap investors should accumulate the shares of AirIQ up to a price of $0.20. At $0.20, the shares would still not be overvalued trading at less than 7-times Enterprise Value (EV) /EBITDA based on the Company's current capital structure.

Our stock accumulation target of $0.20 does not include the possibility of shareholder value-enhancing events. We note the GPS asset management industry is undergoing some consolidation through merger and acquisition activity. AirIQ would be an accretive acquisition for a larger Company. Therefore the potential upside for this stock is much higher than $0.20.

Of note: Mosaic Capital Partners LP owns over 18% of AirIQ's outstanding shares and management and directors combined own another 30% of the Company's shares.

AirIQ has approximately 28.9 million shares outstanding.

The Company's website: www.airiq.com

Author's share ownership disclosure: IQ - Yes


Read Disclaimer:

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 AirIQ Inc. nor has it received any compensation from AirIQ Inc. the preparation or distribution of this article.

The author of this article has acquired and may trade shares of AirIQ Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.