Tech stocks are having a rough time on the market this year, with the Nasdaq-100 Technology Sector index shedding nearly 20% of its value in 2022. But Sierra Wireless (SWIR) has bucked the trend of late with a solid set of earnings results for the fourth quarter of 2021.
Shares of the Internet of Things (IoT) specialist, which provides modules, routers, connectivity chips, and services, shot up nearly 16% following the release of the earnings report on Feb. 22, and they have continued to move higher ever since.
Sierra stock could deliver more upside, as the chipmaker's growth has started picking up the pace. It shouldn't be surprising, as it serves the fast-growing IoT market where there's robust demand for chips. Let's look at the reasons why Sierra Wireless is primed for more upside and check why now is a great time to buy the stock.
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Sierra Wireless' terrific growth is here to stay
Sierra Wireless delivered fourth-quarter revenue of $150 million, up 24.4% over the prior-year period. The company credited this impressive growth to strong end-market demand and its ability to meet that demand on account of a robust supply chain. More specifically, Sierra Wireless' prior investments to secure more components and diversify its manufacturing footprint are paying off.
However, supply chain constraints did weigh on Sierra's margin profile during the quarter. Its gross margin fell to 32.5% in Q4 from 36% in the prior-year period on account of higher component costs. Still, Sierra managed to mitigate the lower margin by controlling its operating expenses, which fell nearly 11% year over year.
As a result of its cost control and the nice increase in revenue, Sierra's adjusted net income came in at $0.03 per share during the quarter, compared to a loss of $0.19 per share in the year-ago period. It is worth noting that Sierra's revenue and earnings were way better than Wall Street's expectations, as analysts were looking for a loss of $0.12 per share on revenue of $126.5 million.
Sierra's guidance for the current quarter suggests that its momentum is sustainable. The company anticipates $142.5 million in revenue this quarter at the midpoint of its guidance range. That would translate into 32% year-over-year growth as compared to the prior-year period's revenue of $108 million, indicating that Sierra's pace of growth is about to get better this quarter.
The company is sitting on a massive opportunity
Sierra could sustain this impressive growth throughout the year, as management says that the company has entered 2022 with the strongest backlog of orders in its history. Sierra management didn't quantify the backlog, but the demand for Sierra's chips, which are used in various IoT verticals such as low-power wide-area (LPWA) networks, 5G modules, and smart SIM cards, among others, remains robust.
For instance, the number of LPWA connections is expected to increase to 4 billion by 2030, as compared to 330 million at the end of 2020. The 5G IoT market, on the other hand, is expected to be worth $40 billion by 2026, as compared to $2.6 billion in 2020, according to third-party estimates.
More importantly, Sierra is in a solid position to take advantage of these opportunities, as it has partnerships with over 600 cellular providers in 190 countries across the globe. This makes the company a key player in the cellular IoT module market, where it held a share of 10% in 2020 as per Counterpoint Research, a space that's growing at a compound annual rate of nearly 26%.
These opportunities indicate why analysts expect Sierra's top line to increase 20% this year, while its earnings could grow at an annual pace of 15% for the next five years. Additionally, the stock is trading at just 1.5 times sales, a discount to the S&P 500's sales multiple of 2.8. So investors looking to buy a growth stock trading at an attractive valuation should take a closer look at Sierra Wireless, as it has the potential to deliver impressive upside in the long run.
