The selloff in Redline Communications (TSX:RDL) is overdone, says Byron Capital analyst Dev Bhangui.
In mid-August, Redline reported its Q2, 2013 results. The company lost (U.S.) $533,889 on revenue of $8.9-million.The topline number fell below the street consensus was for $11.4 million.
in the days following the numbers, shares of Redline sold off, falling as low as $4.90 after hitting midsummer highs above $6.00.
Bhangui says the recent low prices ought to be a wake-up call for investors, who should remember that the larger picture on Redline is that this is a company in the middle of a rise the Byron analyst expects will be steep and sustained. He thinks the second half of fiscal 2013 will be particularly strong for Redline, and that the revenue deferral that characterized the first half of the year will be reversed.
In a research update to clients, Bhangui reiterated his STRONG BUY rating and $7.50 one-year target on Redline Communications.
Bhangui says as a supplier of wireless equipment to the oil and gas industry, Redline now positively dominates it chosen niche. He says the company is on the cusp of rolling out lucrative solutions with major oil and gas providers such as Occidental, BP and Chevron, but is not being rewarded for its leadership position.
He notes that despite margin and revenue growth that is far outpacing its comparables in the machine-to-machine space, Redline is currently trading at 1.4x estimates of its 2014 revenue, vs. peers that are trading at 1.8x. He says this represents a “compelling” buying opportunity.
Shares of Redline closed Friday up 1.8% to $5.09.