Shares of the wireless communications equipment manufacturer Sierra Wireless (NASDAQ:SWIR) have risen close to 90% this year before dropping slightly after analysts were less than impressed by the company's tepid Q3 forecast. Shares are still up almost 40% over the last 12 months though, largely driven by a turnaround in its original equipment manufacturer (OEM) business that accounts for the majority of its revenue.  

SWIR Revenue (Quarterly) Chart

SWIR Revenue (Quarterly) data by YCharts

Can Sierra Wireless keep rising after delivering terrific gains in the first half of 2017? Let's find out.

Various objects that constitute the Internet of Things

Image source: Getty Images.

Is it still good value?

Sierra Wireless is definitely not cheap, after its rapid rise in recent months. The stock is quite expensive, at almost 50 times last year's earnings, while the industry's median price-to-earnings ratio is just 26.

But investors shouldn't forget that Sierra Wireless is operating in the fast-growing Internet of Things space. The company has achieved terrific earnings growth over the past year thanks to its impressive cost management, despite a tepid top line performance. 

SWIR EPS Diluted (TTM) Chart

SWIR EPS Diluted (TTM) data by YCharts

Now, Sierra's earnings growth could get even better if the company can boost its revenue. This seems likely given that this is a pure-play IoT company, and its prospects will improve with time as the adoption of this concept improves. In fact, Sierra's revenue has started gaining pace already, rising over 11% in its latest quarter as compared to the prior-year period.  

More importantly, Sierra Wireless has been attacking a variety of multi-billion-dollar opportunities in the IoT space that could justify its expensive valuation in the long run. Let's take a look. 

Why Sierra's top line could take off

Sierra's OEM solutions business growth slowed to 9% last quarter. Despite a slowdown this past quarter the segment looks set to drive long-term revenue growth for the company, driven by the addition of new customer programs and a ramp-up in demand from existing clients. This segment should get stronger next year because of the company's Volkswagen contract. The German automaker has decided to use the chipmaker's AR series cellular modems to ensure high-speed and secure cellular connectivity to the cloud.

As it turns out, Volkswagen will start deploying Sierra's 4G modules across several models from next year onward. This could substantially boost the latter's business, as the German auto giant moves more than 10 million cars annually.

Earlier in the year, Sierra made a bet in the global navigation satellite systems (GNSS) market, with the $3.2 million acquisition of GlobalTop Technology's GNSS embedded module business. Markets and Markets forecast that the GNSS chip market could be worth $5 billion in the next five years, and Sierra has crafted a smart strategy to attack this opportunity despite the presence of big rivals such as Qualcomm.

Sierra is focusing on the vehicle telematics market with this acquisition. It could integrate GlobalTop's chips with its own embedded modules to deliver high-speed cellular connectivity and location-based services in a single package. This shouldn't be too difficult, as GlobalTop is known to create chips that occupy much less real estate, enabling Sierra to offer a stronger connectivity platform to the automotive industry that could help it land more customers.

The Foolish takeaway

Sierra Wireless stock can get even better in the long run as the company seems to be pulling the right strings to take advantage of the IoT opportunity. Of course, the stock is expensive right now, but investors shouldn't forget that the company is expected to deliver double-digit earnings growth over the next five years.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm and Sierra Wireless. The Motley Fool has a disclosure policy.