Swir Chip
Source: Sierra Wireless.

The Internet of Things is one of the biggest innovation-based initiatives in the technology industry right now, and Sierra Wireless (NASDAQ:SWIR) has connected its business success to that initiative with impressive results thus far. In its mission to help machines share information with each other via cellular wireless connections, Sierra Wireless is hoping to become the backbone of the Internet of Things, and its efforts to help other businesses improve their connectivity have already been hugely profitable for the Canadian company. With the stock having doubled in the past year, though, some investors wonder whether Sierra Wireless' share price is getting ahead of its fundamentals. Let's take a closer look at what helped send Sierra Wireless up so much in November and what the future holds for the connectivity specialist.

SWIR Chart

SWIR data by YCharts

The major catalyst for Sierra Wireless' recent surge
As you can see in the graph above, the biggest portion of the stock's upward move came early in November, after Sierra Wireless announced its third-quarter results. Adjusted net income soared 77% to $7.7 million, causing earnings per share to more than double from year ago levels. Sales growth of nearly 28% came primarily from a 30% jump in revenue from its OEM Solutions segment, but Sierra's Enterprise Solutions business also managed to pick up 15% higher sales and boosted its gross margins by more than five percentage points in the process.

Sierra Wireless has done a good job of capitalizing on its opportunities internally, but it has also been smart about finding other businesses that can help complement its existing capacity going forward. Already, recent transactions with companies like In Motion Technology and AnyDATA have helped generate additional growth and fleshed out Sierra's offerings in key niches of its broader market. Thanks to its profitability, Sierra Wireless can afford to pursue similar prospects for acquisitions in the future, and given the expected rise in demand for its products and services, ramping up will be essential for Sierra Wireless in order to avoid falling short of its full potential and disappointing current and future customers in the process.

Swir Philips London
Sierra Wireless has worked with Philips to help it power tens of thousands of lights in London. Source: Philips.

What's next for Sierra Wireless?
Sierra Wireless doesn't see its exceptional growth coming to a halt anytime soon. In its third-quarter report, Sierra Wireless gave guidance for the current fourth quarter, and it expects even faster growth than investors were already looking for from the budding tech company.

Of course, Sierra Wireless isn't the only player seeking to enrich itself from the Internet of Things. CalAmp (NASDAQ:CAMP), for instance, has worked hard to develop its Wireless Datacom business, with some major customers using its capabilities to monitor equipment to check for and detect defects and malfunctions. In addition, CalAmp has helped insurance companies monitor driver behavior to help build better premium pricing models, rewarding safer drivers and learning about what causes accidents and other claim-producing events. Nevertheless, Sierra's emphasis on embedded modules arguably has even greater prospects ahead, with the potential for tens of billions of interconnected devices by the end of the decade meaning not only huge hardware sales for Sierra but also the management platforms that will help gather, analyze, and draw conclusions from the resulting data. In addition, Sierra has an impressive customer base that includes many of the biggest names in the automotive industry.

Swir Airlink

Source: Sierra Wireless.

Of greater concern is the fact that Sierra Wireless is a small company serving much larger players in the technology industry. Especially with so much of its business coming from original-equipment manufacturing solutions, any decision from a major customer either to choose another provider or bring their connectivity operations in-house could have a substantial impact on Sierra's revenue. Moreover, as we've seen with some other smaller companies in the tech industry lately, the lack of bargaining power that a smaller company has against a potentially huge customer can sometimes lead to contractions in margins and make opportunities less profitable than they'd otherwise be. Sierra will have to work hard to cement its negotiating positions, while at the same time, its efforts to connect directly with businesses through its Enterprise Solutions segment could offer much needed diversification if it can grow over time.

Nevertheless, Sierra Wireless continues to have huge potential to grow alongside the Internet of Things initiative. As larger players in the tech industry get even more invested in areas like data analytics and remote-access control that the Internet of Things will make possible, Sierra Wireless has the opportunity to become a core part of every solution that business enterprises adopt in order to take full advantage of their new capabilities.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends CalAmp and Sierra Wireless. The Motley Fool owns shares of Sierra Wireless. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.