Redline Communications has transitioned from turnaround to growth story, says Cantor

A “robust” slate of bookings and pilots means Redline Communications (TSX:RDL) has transitioned from a turnaround play to a growth story, says Cantor Fitzgerald Canada analyst Justin Kew.

Tomorrow after market, Redline will report its Q1, 2015 results. Kew expects Redline will post EBITDA of $0.8-million on revenue of $9.8-million, which would be a 39% bump over last year’s topline.

The analyst thinks key signs of an important change at Redline are currently being ignored.

“Robust bookings and pilots, indicators of future revenue, give us confidence that revenue growth will continue,” said Kew. “We also expect that margins will scale as revenue expands. RDL stock currently trades (on 2015 metrics) at 1.1× revenue, 7× EBITDA and 11× earnings, reflecting a high degree of skepticism that management can maintain the current growth and profitability trajectory. Our thesis is that the stock will get revalued, more in line with growth stocks in coming quarters.”

In a research update to clients today, Kew maintained his “Buy” rating and one year target of $5.00 on Redline, implying a return of 52% at the time of publication.