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Why CalAmp Stock Just Popped 17%

By Rich Smith – Apr 17, 2020 at 1:47PM

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Jefferies sounds a bullish note on CalAmp.

What happened

Shares of mobile Internet of Things company CalAmp (CAMP -1.42%) are hopping this morning, up 16.7% as of 12:50 p.m. EDT -- and for more reasons than just generalized market enthusiasm over Gilead Sciences' new anti-coronavirus drug.

So what is the reason CalAmp is rising so high today?

Man rides a bull up a rising stock arrow.

Image source: Getty Images.

So what

This morning, investment banker Jefferies & Co. announced it is upgrading shares of CalAmp from hold to buy, reports, and is assigning the stock an $8.25-per-share target price.

Since CalAmp shares cost less than $5 a share before the upgrade, and Jefferies only thought it was worth $5.50 before, this is a sizable boost to sentiment surrounding the stock. Basically, Jefferies is saying that it expects the stock to rise 65% in value over the course of the next year, and so even after today's run-up, there's still a good 42% worth of gains yet to be had.

Now what

There's 42% worth of gains yet to be had -- if Jefferies is right about CalAmp. Jefferies right?

According to the analyst, worries over the effects of COVID-19, plus other concerns about the business, have subtracted 63% from CalAmp's stock price over the past year. And yet, the analyst notes, 35% of CalAmp's business comes in the form of recurring revenue that is likely to continue through the current recession. And as for the remaining 65%, it seems unlikely CalAmp will lose all of that, no matter how bad the economy gets. In short, the downside risk on this stock has already been priced in -- "plus some," says Jefferies.

At a current valuation of less than 0.5 times sales and a history of generating significant free cash flow on those sales in most years, CalAmp stock does indeed look attractively priced today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends CalAmp. The Motley Fool has a disclosure policy.

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