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Sierra Wireless stock is not a good idea right now, Kim Bolton says

Sierra WirelessVancouver-based network and software solutions company Sierra Wireless (Sierra Wireless Stock Quote, Chart, News TSX:SW) has seen its struggles to grow its IoT business reflected in its share price, which has tumbled almost without pause over the past two years.

The problem, according to portfolio manger Kim Bolton, is that the company’s efforts aren’t showing up where it counts in its financials.

“We don’t own it but we follow it. [With their last quarter] they missed on the top, they missed on the bottom and then they pulled down their full-year guidance,” said Bolton, president of BlackSwan Dexteritas, to BNN Bloomberg on Friday.

“On the other side of it, they talked about very strong progress on transitioning the whole company into an Internet of Things solutions company and they noted about record quarter recurring services and growing services pipeline,” Bolton added. “It’s just not panning out on the financial statements, and so, it’s very difficult to figure out.”

Sierra Wireless, which has both an embedded broadband segment and an Internet of Things business, gave a big boost to the latter when it bought Numerex, whose IoT capacity provides managed machine-to-machine enterprise solutions. The $107-million deal aimed at creating “a powerful business and technology platform,” according to Sierra’s former president and CEO Jason Cohenour at the time the purchase was announced in August 2017. (All figures in US dollars unless where noted otherwise.)

“The acquisition of Numerex accelerates our IoT device-to-cloud strategy by adding an established customer base, significant sales capacity, proven solutions and recurring revenue scale,” said Cohenour.

The company then went through a management shakeup in 2018, but the follow-through on IOT has been less impressive, with continually disappointing sales numbers.

Sierra’s latest quarterly report came in early November where its third quarter revenue was $174.0 million compared to $203.4 million a year earlier and IoT Solutions revenue was down 2.1 per cent year-over-year to $93.4 million.

For 2019, Sierra management has now predicted that revenue will decline by ten per cent and adjusted EBITDA to drop by 59 per cent.

“We continue to make strong progress on our transformation to an integrated IoT Solutions company,” said Kent Thexton, President and CEO, in the November quarterly release. “We had a record quarter in new recurring services wins and our services pipeline is growing. In addition, we are continuing to drive greater efficiencies in our business under our two-year cost reduction program.”

Sierra’s share price hit a high of C$56.94 back in 2015 and then again reached the C$43 mark in mid-2017, but since then the stock has trailed off, dropping below C$14.00 after the November quarterly numbers. Year-to-date, Sierra Wireless is currently down 32 per cent.

Bolton says, “It went under that technical point of C$12, so there’s still going to be some pressure on it. There may be an opportunity if you get one final blow-off.”

“They are a good company, it just hasn’t panned out yet on the financials,” he says.

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