Avigilon: A Value in Video Surveillance

08/10/2015 8:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured recommendation is a Canadian-based firm that is a leader in network-based video surveillance systems, surveillance cameras, video analytics, and other security equipment, notes J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Avigilon (TSX: AVO; OP: AIOCF), headquartered in Vancouver, British Columbia, was formed in 2004 and offered shares to the public in 2011 on the Toronto Stock Exchange.

Customers include police departments, schools, hospitals, prisons, airports, and public transportation systems.

The company provides the security video systems for San Diego’s public transit system, Toronto’s Rogers Centre stadium, and for many other venues.

Avigilon’s research goal is to upgrade surveillance cameras to high-definition quality, enabling customers such as retailers and governments to protect against theft or terrorism.

The firm’s systems can provide detailed images usable in court or usable by facial recognition software. The company’s cameras can identify faces and license plates from 46 meters (150 feet) away.

Avigilon has ample resources at its disposal with no debt. Management’s ramp-up in marketing, research, and employee hiring expenditures is expected to double the company’s sales within two years.

The current 16.9 P/E is easily justified by Avigilon’s growth prospects. The company increased marketing expenditures by 50% in 2014 and doubled research and development outlays.

Management’s objective is to invest similar amounts in 2015 to retain the company’s leadership in the video surveillance business.

Earnings per share will likely grow at a 28.5% pace during the next five years. The resulting PEG ratio of 0.59 is very attractive.

The stock price has been on a roller coaster ride since its debut in October 2011; the shares soared 583% to year-end 2013, but then dropped 51%.

The sharp rises and drops are unnerving, but the wide swings provide profitable opportunities for nimble traders.

For longer-term investors, the current low price provides an excellent entry point to buy an exciting company in the rapidly growing surveillance sector.

I expect AVO to reach my minimum sell price target of $38.19 on the Toronto Stock Exchange or $30.55 on the OTC within one to two years. Note the OTC shares are thinly traded.

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