Is Hemisphere GPS ready to Bounce Back?

Mid-September estimates from the U.S. Department of Agriculture showed that national crop yields were down for the second consecutive year. Precision farming solutions, such as those offered by Calgary's Hemisphere GPS, are gaining traction worldwide.

The performance of most TSX stocks hasn’t been great of late, but shareholders of Hemisphere GPS (TSX:HEM) have been hit particularly hard. Shares of the Calgary based maker of next-generation GPS hit a high of $1.51 on February 4th, but bottomed out at $.64 cents on October 4th.

What may have shareholders scratching their heads is the company’s financial performance, which seems inversely related to its chart. The Company’s strong Q1 and Q2 2011, which came in at $21.2 million and $20.12 million respectively, did little to slow the slide of the stock from a very poor Q4 2010, which barely topped $12 million. The market cap of Hemisphere GPS is now a shade under $40 million, while the company’s 2010 revenue was $56 million.

But at least one noted investor says its time to buy. Benj Gallander, author and founder of the the popular site Contra the Heard thinks Hemisphere GPS’s current situation represents opportunity. Last year, Gallander was bullish on the prospects of the company to make a dent in the precision farming market, but was disappointed in the Q4 numbers and subsequently sold. Encouraged by the turnaround, however, Gallender says he’s buying again. He now has a $3 target on the stock.

Talking to Cantech Letter in July, it was clear that Hemisphere CEO Steven Koles felt the company’s rebound had staying power. “We put significant investments into R&D during the economic downtown so that we could maximize our innovation and build a stronger portfolio for when market growth re-emerged” he said, adding that “We can confidently state that after a record number of number products launched in 2010, we have a much stronger portfolio today with which we can generate significant returns off for our shareholders.”

New data suggests the need for increased efficiencies in crop-yield may be set to be a front burner issue. Mid-September estimates from the U.S. Department of Agriculture showed that national crop yields were down for the second consecutive year. Purdue agricultural economist Chris Hurt predicts that by August, 2012 US stocks of both corn and soybeans will be reduced to a nineteen-day supply.

Precision farming, or precision agriculture, is a term that only began to gain traction at the end of the last century, but since that time since has become an increasingly important method of increasing crop yield worldwide. The burgeoning industry has attracted the interest of farm equipment manufacturers like John Deere, and large agrochemical companies like Monsanto and DowElanco.

The National Institute of Food and Agriculture now believes the greatest technology push in all agriculture has been in precision farming. The organization says that initial barriers to adoption, namely initial cost, uncertain economic returns, and technology complexity are beginning be overcome by small and medium sized producers. Larger producers it says, are firmly on-board because the “economies of scale and narrow profit margins provide an economic advantage.”

Shares of Hemisphere GPS closed yesterday at $.65 cents, up a penny, as 350,000 shares changed hands.

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