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Thursday, August 22, 2013

With 357% EPS Growth, Pointer Telocation Ltd. Shares Could Be Valued Over $10

Pointer Telocation Ltd. (PNTR) has a growing client list with products installed in nearly 1 million vehicles in over 55 countries across the globe.

Cellocator™, a Pointer Products Division, has been in the forefront of wireless communication and location technology since 1997 and is a leading AVL (Automatic Vehicle Location) solutions provider for fleet management, car and driver safety, public safety, vehicle security, M2M wireless data communications, asset management and more.

Cellocator's systems are used by transportation companies, security forces, public utilities companies, service companies, commercial enterprises, security companies and others. Pointer's forward-thinking tracking solutions are based on smart, future-proof Telematics technology and design - ensuring users of effortless setup and reliable, network-friendly performance.

Machine to machine (M2M) refers to technologies that allow both wireless and wired systems to communicate with other devices of the same type. M2M has been and is one of the hottest growth sectors in the tech world. M2M stocks have commanded higher P/E ratios. The companies below have similar businesses in the asset monitoring niche of M2M :

Elecsys Corporation (ESYS) has a P/E of 15 on $0.43 TTM EPS

Numerex Corp. (NMRX) has a P/E of 39 on forecasted EPS of $0.26 for next fiscal year.

Ituran Location & Control Ltd. (ITRN) - a direct comparison, has a P/E of 17 on TTM EPS of $1.07

For the first six months of this fiscal year, PNTR has recorded EPS of $0.32. This compares to EPS of $0.07 for the comparable period the prior year. This is EPS growth of 357%.

Adjusted EPS, (which is calculated by adding back to net income, net loss from discontinued operations, the effects of non-cash stock based compensation expenses, amortization of intangibles related to acquisitions and non-cash tax expenses resulting from timing differences relating to the amortization of acquisition-related intangible assets and goodwill) was $0.63. $3.5mm / 5.55m shares outstanding. It should also be mentioned that PNTR generated $3.5mm of cash from operations in the first six months of this fiscal year.

As for comments to if this growth can continue, David Mahlab, Pointer's Chief Executive Officer, commented on the results: "We are pleased by our continued improved performance - both on the top and bottom lines - despite the challenging economic conditions in markets around the world, leading to prices and margins erosion in our Company. We are continuing to devote a great deal of effort in developing and launching new products that will enable us to sustain our leading market position and continue to improve our overall performance. In addition, we continue to explore growth opportunities in additional markets along with our ongoing marketing efforts in Latin America."

Risks could include failure to execute and a general global economic slowdown. However, the Company seems to be exploring growth areas to mitigate this.

I will consider the NMRX P/E ratio an outlier and take the average of ESYS and ITRN P/E ratios to get 16. If PNTR were to get valued with this P/E ratio on their normal EPS run rate of $0.64, PNTR would be a $10.24 stock. If PNTR were to get valued with this P/E ratio on their non-GAAP EPS run rate (excludes non-cash charges) of $1.26, PNTR would be a $20.16 stock. Currently at a share price of $5.20, you can see why I believe PNTR is undervalued. With a low tradeable float of 4.5mm shares, I believe PNTR could be a stock to watch once the EPS gets discovered.

Disclosure: I am long PNTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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