Some minor stabilization crept in at the end of Monday’s session but there’s no incentiv...
Profit from This Stock's 'Bad Day'
05/17/2013 7:45 am EST
When this company hit a bump, Wall Street punished it. Now's the time to buy low, says Marc Gerstein of Forbes Low-Priced Stock Report.
Orbcomm (ORBC) is an old friend—a very old friend, having been first reviewed here in October 2010.
It's also been a very good friend, with the shares having appreciated from $2.30 to above $4 today. What's particularly interesting about this position is how long we've been able to stay in it-nearly two and a half years-without having had any real occasion to refresh our analysis.
Simply put, the company articulated a strategy back in the day, and then went out and executed it, with no serious drama or fanfare. That's rare nowadays in any segment of the market, and is especially so in our low-priced corner of the world.
Finally, though, when year-end 2012 results were announced in late March, the Street perceived grounds for angst and sent the stock down from $5-plus levels. Needless to say, now would be a good time to revisit ORBC.
The company's core competence was, still is, and will remain M2M (machine-to-machine) terrestrial- and satellite-based network systems that track fixed and mobile assets located anywhere in the world. Examples include transportation equipment, heavy (i.e. construction-related) equipment, fixed assets (such as storage tanks, pipelines), the electrical grid, maritime vessels, and government installations (such as borders).
The kinds of information transmitted over the networks include location, engine performance, driver or operator performance including compliance with safety mandates, fuel consumption, time of use, maintenance needs, improper incursion, etc.
An important aspect of the investment case I laid out back in 2010 was the prospect of economic recovery, which would translate to more "assets" in more locations doing more things and having more things happening to them. That has, indeed, played out as expected.
As to the late-March angst, ORBC finally did what pretty much any company that doesn't open for business and then close shop within a year or so is bound to do: it came in below consensus and guided lower.
It's nothing that busts our investment case, but ORBC followers had felt immune, and now have been brought back into reality. It's irritating. But it's unavoidable if one wishes to hold a stock on a long or even moderate-term basis.
Meanwhile, there are some interesting new company developments to contemplate. One is a new-generation satellite on which ORBC is working, which will lead to dramatic increases in speed and capacity.
Another is the stretching of ORBC's business model from an emphasis on the network to the company becoming more of an end-to-end provider, as it beefs up its efforts in telematics (the actual gathering of information from the asset being tracked) and in logistics management (the processing and analysis of the information that is ultimately received).
Acquisitions are playing an important role here, examples being:
- StarTrak, which focuses on specialized telematics used in connection with temperature-controlled transportation of goods
- MobileNet, which provides telematics to the heavy equipment and rail industries
- GlobalTrak, a firm that in addition to enhancing ORBC's proficiency in telematics, also gives it more access to military customers as well as customers in the Middle East and Asia
The stock isn't cheap now, nor was it when we started in 2010. But the company does have some attributes in common with cable TV and wireless communications firms; as it builds its networks, it gains more ability to add new revenues to without experiencing proportionate increases in costs.
That should help ORBC should grow into the valuation, as we saw with the cable and wireless firms. Orbcomm remains a buy.
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