Update: Ruggedcom a Smart Grid Company

Ruggedcom (ticker: RCM in Toronto) was the first company I discussed on this blog. The company reported its third quarter financial results last night and had a conference call this morning. Overall, the results were impressive.

• Revenues were up 53.4%.
• Consensus was expecting earnings per share of $.21 and the company reported $.033.
• Gross margin was up strongly to 65.7% due to improved product costs, favorable sales mix and foreign exchange.
• The company generated cash once again. The cash on the balance sheet declined slightly but it was a foreign exchange effect.

A few things to consider. In the past few weeks, this company has been hyped on television or in newspapers by a number of "experts". Hype can be a problem, especially for companies with volatile quarterly results. One weak quarter and all the "fast" money would want to exit at the same time. It is a problem but it can also create a buying opportunity. One last tidbit, I would not be surprised if one day Cisco buys Ruggedcom. Keep this one on you radar screen.

Riding the Wave - Ruggedcom Inc. (Ticker: RCM in Toronto)

Have you heard of The American Recovery and Reinvestment Act of 2009? In the next few weeks, the U.S. Congress will consider this Act, which could have very positive effects on a few small cap companies with exposure to the U.S. market. One of them is Ruggedcom. The focus of the Act is to modernize the U.S. infrastructure, including creating a smart grid. Ruggedcom has designed products and technologies that are the communications backbone of the smart grid and the company has been successfully selling to electric utilities for past few years. I could go on and on about the various products offered by Ruggedcom but I think the best way to educate yourself is to visit their website (http://www.ruggedcom.com/).

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.