I've been buying SCKT for over two months and it is now my second largest holding. It is the best new idea I have seen this quarter. I think it has good odds of running to $5 in 2015 and beyond that it subsequent years.
Here is a short summary of why I like it:
1. Growing earnings - They made $0.08/share in Q3'14 vs. a loss of $0.07 in Q3'13. Based upon their guidance, it is looking like Q4'14 will come in with EPS in the $0.05-$0.07 range. I expect EPS to grow significantly in 2015 as revenue grows. I haven't created a model yet but earnings in the $0.50 ballpark is a good swag.
2. Sustainable growth - They have a huge tail wind behind them. The tail wind is created by two main components. First, they have been able to get many software developers to add support for their scanners. So, when people buy this software, they will often buy the scanner. This gives them a lot of marketing that is basically free and which should propel sales going forward. The second tail wind is the rapid growth of Mobile Point-Of-Sale systems and more generally for mobile applications. I really like businesses in growing markets because they don't have to gain market share to grow their top line.
3. High gross margins - Their gross margin in the last quarter was 43.6% which is a very good margin. As revenue grows they don't have to add much in the way of expenses as the application providers do a lot of the marketing indirectly. Therefore, income drops rapidly to the bottom line.
4. Multiple expansion - My assumption is that they will be able to provide consistent growth for at least several years. If they are able to achieve that, they should be able to obtain an attractive multiple given the interesting sector and likely a rapid growth rate. At this point I'm not ready to talk about specific multiples that they can achieve as I think it is a bit too early but I think SCKT has a good chance in the long run of having an aggressive multiple.
If you are just getting started on your DD, a good place to start is the LD Micro Presentation which is located here:
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