TOP IDEAS: Based on the fundamentals and operations, Sangoma Technologies’ (TSX: STC, NASDAQ: SANG) shares are very attractively priced today before it is valued as a billion dollar Communications-SaaS/MSP company.

Since Investorfile’s first blog post introducing Sangoma Technologies (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth.), the stock has returned a high-point investment gain of 2,377%.

While the share price has retreated significantly from its all-time highs in this bear market, we can honestly say that Sangoma Technologies is a better buy today than when Investorfile first recommended the stock as one of our Top Ideas as a small cap value investment opportunity.

Sangoma Technologies (TSX: STC - C$10.95, NASDAQ: SANG – US$8.43 ) is a trusted leader in delivering value-based Communications as a Service (CaaS) and Managed Service Provider ("MSP") solutions for businesses of all sizes. Today this Company provides the Industry’s most compressive cloud communications suite and broadest product portfolio in the market, with the ability to provide a full end-to-end communications solution for enterprise customers over the cloud, on-premise or hybrid.

As a services provider, Sangoma has differentiated itself from competitors by being a one-stop shop solution to the enterprise market and by providing a fully integrated experience for support and cost savings to its customers. The Company provides an array of cloud-based communication services, including Unified Communication (UCaaS) business communications, Contact Center as a Service (CCaaS), Video Meetings as a Service (MaaS), Collaboration as a Service (CollabaaS), Communications Platform as a Service (CPaaS), Trunking as a Service (TaaS), Fax as a Service (FaaS), Device as a Service (DaaS), Access Control as a Service (ACaaS), Security as a Service (SaaS), SD-WAN Management Services and Network Access as a Service.

What makes Sangoma Technologies such a compelling investment today? First, based on the financial fundamentals, there is the opportunity for small cap investors to be exposed to a very attractively valued company that has a history of growth and profitability.

Based on analysts' consensus estimates for Fiscal 2023 (which begins on July 1, 2022), Sangoma Technologies’ current share price values this Company at about 1x annual revenues (US$290M @70-75% recurring) and at 5.5x Adj. EBITDA. Given industry comparables and historical averages of similarly sized technology growth companies, this valuation is quite discounted. There is no argument with this fact.

In addition to the Company’s financial fundamentals are the notable operational highlights. Sangoma Technologies has a growing, diverse and globally distributed customer base, comprised of over 100,000 enterprises in more than 100 countries, with no customer concentration risk. The Company says it has a 99% customer retention rate, with a track record of long customer relationships, tied to recurring revenue service contracts. Typical customers of Sangoma include multi-location businesses and mid-sized enterprises across many verticals. The Company reaches the majority of its customers through an established channel partner-centric go-to-market strategy.

Sangoma’s operational model generates strong financial metrics. A majority of the Company’s revenues are derived from services, which equates to sustainable recurring business. Its service business drives gross margins to an excess of 70%. Profitability is consistent with adjusted EBITDA margins as a percentage of annual revenues in the 18-20% range.

Since 2017, Sangoma has grown its revenue base significantly (62% Revenue CAGR), both through organic and M&A driven growth. We expect high rates of growth will continue. We note that the Company is an industry leader in consolidation. With 11 acquisitions to date, Management is proven in its ability to source; finance, close and, most importantly, integrate the businesses it purchases.

Based on our analysis, expect a continuation of Sangoma’s operational and financial performance. Therefore, in time, a rerating of the Company’s valuation metrics will occur and Sangoma’s market capitalization will exceed C$1 billion. For buy and hold small cap investors, this means earning three times your investment if you purchase Sangoma shares today.

This stock was a big gainer the first time we recommended Sangoma Technologies. That said, at Investorfile we think we have an even a better chance to be correct again.

The Company has approximately 33.3 million shares outstanding on a diluted basis.

Sangoma Technologies website: www.sangoma.com

Author Ownership Disclosure: TSX: STC – Yes

Investorfile's share price accumulation target of $0.40 (pre-consolidation) for Sangoma Technologies Corp. was initially reached on April 24, 2014.

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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 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.