Ruggedcom has been riding a wave of investment in rugged communications. Last quarter, its revenue was up 54% year-over-year and 13% quarter-over-quarter, with most of the growth coming from sales to electric utilities. The other segments (Transportation, Industrial and Military) have also shown some limited growth.
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Profitability has also exhibited strong growth but with some volatility. This volatility in earnings could potentially provide an entry point into the stock if the company were to report a "bad" quarter.
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In addition to the fact the Ruggedcom is in a good industry to benefit from infrastructure investments, I also like the company because it does not need financing. Ruggedcom has over US$45 million (that's US$3.60 per share) on its balance sheet with no debt and it is generating cash. So the company has staying power.For the fiscal year ending in March 2009, the consensus estimate is around US$.82. The shares are trading at around $14.50 putting the P/E multiple at 17.6x or 13.3 (x-cash). While this is not cheap considering current markets, I think that this is a good company that is well positioned to take advantage of infrastructure spending.
NOTE: This post is not intended as a recommendation but it is aimed at generating a discussion about the company. I may or may not own shares in the company mentioned. Do your own due diligence. Do not solely focus on the potential profit but make sure you understand the risk of any investment.
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Great minds think alike ... from Dow Jones
DJ U.S. Infrastructure Spend A Boon For RuggedCom >RCM.T
By Stuart Weinberg OF DOW JONES NEWSWIRES TORONTO (Dow Jones)--RuggedCom Inc. (RCM.T) is so named because it makes rugged communications equipment built to withstand harsh climatic environments. The description could just as easily apply to the company's stock, which has withstood the harshest market environment since the 1930s.
In 2008, a year when the S&P/TSX Composite fell 35%, RuggedCom's stock rose 25%, exiting the year at C$14.51. The stock has picked up where it left off in 2008, hitting a 52-week of C$17.20 in Toronto earlier Friday. The stock has since come off slightly, but is still up 8% to C$17.00 in late trading.
Friday's momentum is being fueled by the unveiling of the U.S. government's US$825 billion stimulus package, which includes US$32 billion of funding for a "smart electricity grid."
RuggedCom is well positioned to benefit from the massive infrastructure spend because its ethernet switches and routers allow key pieces of equipment in electrical substations to communicate with each other in real time using IP (Internet Protocol) technology.
"There's nothing like an idea whose time has come," said Marzio Pozzuoli, founder and chief executive of RuggedCom.
Arinder Mahal, analyst at Dundee Securities, said the American power grid is "sadly outdated." Many of the transformers and transmission lines on the U.S. power grid are 25 years old, or older, and badly in need of modernization.
Revenue Up 50% In Each Of Past Three Fiscal Years A thinly-traded smallcap that went public in July 2007 at C$13, RuggedCom has mostly flown under investor-radar screens. It shouldn't. The company has increased revenue by 50% in each of the past three fiscal years, ending fiscal 2008 with revenue of C$39.2 million. Earnings in the first six months of fiscal 2009 rose more than 300% to C$4.92 million from C$1.21 million. The mean analyst estimate for fiscal 2009 is for net of 96 Canadian cents on revenue of C$71 million, according to Thomson Reuters.
Mahal said RuggedCom is growing so quickly it now has some power to dictate pricing to suppliers. That's one reason earnings and margins are expanding so rapidly. Margins in the first six months of fiscal 2009, which ends in March, hit the low 60% range, up from 55% a year earlier.
RuggedCom has hundreds of customers with no single customer accounting for more than 15% of total revenue, Mahal said. The firm's top-10 customers account for less than 50% of overall revenue, he said.
The Woodbridge, Ont. company has 200 employees, most in Canada. It generates about 90% of its revenue outside of Canada, with 40% of that coming from the U.S., Pozzuoli, said.
The executive acknowledged the company's success could make it a takeover target. "I always say when you go public, you are putting a for-sale sign around your neck."
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