Sierra Wireless' (SWIR) stock price has been in fine form since the company released its first-quarter earnings results on May 13, gaining over 40% driven by impressive progress in the Internet of Things and 5G markets.

Wall Street had showered Sierra stock with love following the Q1 report, which revealed a solid spike in demand for the company's IoT solutions. Investors will be hoping for a similar story to unfold when the chipmaker reports its second-quarter results on Thursday, Aug. 12, and the good part is that their wish is likely to come true. That's because Sierra Wireless looks poised to deliver strong results once again. Let's see why.

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Sierra Wireless can crush expectations

Sierra's Q2 guidance calls for $120 million in revenue at the midpoint of its guidance range. However, don't be surprised to see the chipmaker exceed its expectations on the back of a robust demand environment. The company had pointed out in its Q1 press release that it has "secured hardware orders and recurring revenue that is approximately 20% above the mid-point of our [second-quarter] revenue guidance."

But Sierra decided to play it safe with cautious guidance as management said it is facing "a tight global supply chain environment that is constraining [the company's] ability to source all the necessary components and fully deliver to this level of demand." It's worth noting that Sierra management also pointed out that the company is taking the necessary steps to boost production and meet the end-market demand. The company spent additional cash in Q1 to bolster its supply chain by making advanced payments to suppliers and placed orders for more components.

Person pointing their left hand up toward a rising red line.

Image source: Getty Images.

All Sierra needs to do to beat its Q2 revenue estimate is meet the elevated levels of demand, which has been exceeding supply by quite some margin over the past few months. In the fourth quarter of 2020, for instance, demand exceeded supply by 15%, while in Q1 this year, the gap increased to 20%. If Sierra's efforts to shore up the supply chain bear fruit, investors will be in for yet another solid quarterly report.

Focus on the bigger picture

While Sierra's upcoming results may give its recent rally a shot in the arm, the company's prospects in the IoT and the 5G markets point toward a bright future. The company has been racking up design wins at an impressive pace in both of these markets, and that's one of the reasons why its order book is swelling up.

For instance, the company's 5G modules have been certified by several key telecom carriers across the globe. NTT Docomo in Japan, T-Mobile US, and Deutsche Telekom in Europe have all given the go-ahead to Sierra's 5G-embedded modules that can now be deployed on their networks.

The company is also pushing the envelope in the IoT space with new low-power wide-area (LPWA) modules that promise customers longer battery life, bolstering its place in a fast-growing niche. According to third-party estimates, the demand for LPWA IoT modules could increase at an annual pace of nearly 19% through 2025. Sierra's IoT prospects received a big boost recently after Microsoft selected its managed IoT offering in the Azure cloud. Sierra points out that it is now Microsoft's preferred partner for cellular modules, connectivity, and gateways.

Such partnerships could go a long way in helping Sierra make the most of its sizable end-market opportunity. The company points out that its serviceable addressable market could clock a compound annual growth rate (CAGR) of 18% through 2023, hitting $12.2 billion in value compared to $7.4 billion last year. Given that Sierra is expected to generate $484 million in revenue this year, it still has a lot of opportunities to grow the business.

All of this indicates that Sierra Wireless can remain a top IoT stock in the long run, and now may be a good time to go long as it is trading at just 1.5 times sales, which is a nice discount to the S&P 500's multiple of 3.15.