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Feb
12
Sangoma Technologies’ stock price has room to double (again)
Posted by: Gerry Wimmer
2/12/2017
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TOP IDEAS: Despite being up 105%, double digit revenue and profit growth make Sangoma Technologies Corp. (TSXV: STC) share price still notably undervalued.




Investorfile's share price accumulation target of $0.40 for Sangoma Technologies Corp. was reached on April 24, 2014. For the record, we do not revise share price targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.


It has taken about three years for the stock price of Sangoma Technologies Corp. (TSXV: STC - $0.43) to rise and maintain 100% in gains since the Investorfile blog first introduced the Company to our list of Top Ideas (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth.) But going forward, the next 100% in gains may come a lot quicker based on the recent quarterly financial results and guidance.

Sangoma Technologies delivers Unified Communications solutions for SMBs, Enterprises, OEMs, Carriers and service providers. The Company’s scalable offerings include both on-premises and cloud-based phone systems, telephony services and industry-leading Voice-Over-IP solutions which, together, provide seamless connectivity between traditional infrastructure and new technologies. Sangoma's products and services are used in leading PBX, IVR, contact centre, carrier networks and data communication applications worldwide.

In our last Sangoma Technologies blog post on October 30, 2016 (See: Sangoma Technologies transformation makes it bigger and better for a profitable 2017) we reiterated our buy recommendation of the Company’s shares. This was based on the growing revenue base being generated from the build out of Sangoma’s Software as a Service (SaaS) and Cloud-based services, to become a provider of Unified Communications (UC) solutions that earn predictable recurring streams of revenues. As revenues increase we had expected that the Company’s profitability will strengthen in fiscal 2017 and so far, we have not been disappointed.

Last week Sangoma Technologies released its Q2 results for fiscal 2017. In Q2, Sangoma reported that quarterly revenues jumped 29% to C$6.57 million. The Company earned a net income of C$290,000 or about C$0.01 earnings per share for the quarter. Most impressive was the growth in EBITDA (11.6% of sales) in Q2, up 85% to C$760,000. When sales and gross profit grow faster than spending, EBITDA margins expand, generating bigger profits.

Our biggest takeaway from the Q2 news release is that for the first time Sangoma’s Management has established future earnings guidance for investors. It says, "For the fiscal year 2017 (ending June 30), Sangoma expects revenue of approximately $25 million with EBITDA of about $2.4 million. Further, for fiscal 2018 Sangoma expects revenue to grow about 15-20% and for EBITDA to exceed 10% as a percentage of sales.”

Despite that the stock has surpassed our share price accumulation target of $0.40 and is up 105% to date, based on the guidance for fiscal 2018, the Company’s stock trades today under five times Enterprise Value (EV) to EBITDA. That said the Investorfile blog still believes that the stock price of Sangoma is notably undervalued and looking forward could support a much higher valuation almost double its current trading price. Therefore we feel that the next 12-months should be a very rewarding period for investors in this Company.

It is often said that the first 100% gain on an investment is a lot harder to earn then the next 100%. This may hold true for shareholders of Sangoma Technologies.

Sangoma Technologies maintains a strong balance sheet with a healthy net cash position.

The Company has approximately 32.4 million shares outstanding.

Sangoma Technologies website: www.sangoma.com

Author Ownership Disclosure: TSXV: STC - 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 Sangoma Technologies Corporation nor has it received any compensation from Sangoma Technologies Corporation for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Sangoma Technologies Corporation 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.