CalAmp (NASDAQ:CAMP) investors were likely disappointed with its performance in 2016, when the company's stock price tumbled 27%. But so far this year, the company has gone more than 6% higher.  Going forward, there are two key areas its investors should focus on to gauge whether or not the company is moving in the right direction -- specifically, mobile resource management revenues and gross margins.

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Mobile resource management revenue 

The importance of CalAmp's mobile resource management (MRM) revenues can't be overstated. The company earns the vast majority of its revenue -- about 81% -- by selling devices that collect data, and the remainder from selling the software and services that send that data to the cloud and analyze it for customers.  

The good news is that in the third quarter, CalAmp's MRM telematics product sales reached their highest level of the past four quarters, and telematics device sales for fleet and connected car applications hit an all-time high.

In addition, the company anticipates more device growth over the next two to three years because more than 1 million commercial transport vehicles will be required to have the type of on-board devices CalAmp sells.

But what's also promising for the company is its ability to grow its software and services revenue. In the third quarter, CalAmp's software-as-a-service (SaaS) revenue jumped 51% year over year, and the number of its software and services customers rose from 605,000 to 621,000.

A combination of strong product sales and more growth to its reoccurring software and services revenue will be the key to the company realizing its full potential. 

Margins, margins, margins

The second thing investors should keep an eye on is CalAmp's margins. The company boosted its GAAP gross margins to a record high of 42.1% in the third quarter, up from 35.6% a year ago. 

Part of the increase was driven by CalAmp's purchase of LoJack's products and services, which closed in the quarter, but it also derived from a "substantial increase" in the year-over-year gross margin from the company's MRM products.

CalAmp CEO Michael Burdiek said on the third-quarter call:

Looking more broadly at software and subscription services, we are pleased to report that SaaS revenue grew 6% sequentially, driven by solid fleet subscriber growth and outstanding performance from LoJack Italy. Our wholly owned LoJack Italian licensee grew more than 60% over the prior year and is expected to maintain momentum into next year.

In short, CalAmp's margins have expanded quickly and the company anticipates its MRM sales and newly acquired LoJack business should continue to keep margins high going forward.  

CalAmp is positioning itself well in the growing Internet of Things market, which is expected to be worth $7 trillion by 2020. The company has already built out a strong MRM business and is wisely focusing on how it can earn more recurring revenue at the highest margins possible. If the company keeps this up, then CalAmp's stock slip of 2016 could be a distant memory very soon. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.