Sierra Wireless, Inc.: Buy the Dip or Throw In the Towel?

Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR) just made a major deal, but should investors be buying on weakness or abandoning ship?

| More on:
The Motley Fool

Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR) is a small-cap tech company that’s in arguably one of the hottest sectors in the market today. The Internet of Things (IoT) industry is expected to surge over the next few years as everything from toasters to refrigerators are connected to the internet.

The magnitude of the IoT market is set to be worth trillions, and the number of devices that will come online over the next few years will be in the billions. We’re living in a connected age, and in a decade from now, the lowest-tech item you can think of will be connected to the internet or other devices within your vicinity.

For many investors interested in doubling down on the IoT market, Sierra Wireless is a solid long-term bet.

Numerex acquisition beefs up Sierra’s CCS business

The company recently acquired Numerex, a machine-to-machine enterprise solution which makes IoT possible. The acquisition is expected to scale Sierra Wireless’s Cloud and Connectivity Services (CCS) segment, which is expected to surge in sync with the number of new devices that will come online over the next few years.

There will be a huge demand for device-to-cloud connectivity and I think the Numerex acquisition will fit in nicely; however, the management team will be presented with the challenge of integrating a business that has been exhibiting sub-par performance of late. There’s definitely room for improvement when it comes to EBITDA margins (just 2.9% over the past year), but I think Sierra is up to the task, so I’m not overly concerned about potential issues that may arise in the integration process.

If the management team can successfully integrate Numerex, a considerable amount of synergies can be realized from the acquisition, which could propel the stock to much higher levels over the medium term. Unfortunately, Sierra didn’t reveal too much in the way of potential synergies from the deal, but I think the company will shed more light on the topic sometime down the road. The deal is set to close January 2018.

Bottom line

Sierra Wireless is going to be busy integrating Numerex in an efficient manner. If all goes well, shares of SW could spike, like they did earlier in the year. Don’t bet the farm on it though, as the spike could go in the opposite direction if integration issues arise.

Sierra Wireless currently trades at a hefty 37.3 price-to-earnings multiple, which is definitely on the expensive side. I’m not a fan of the valuation, so if you’re keen on owning shares, I’d wait for a sell-off to the mid to low $20 levels first.

Stay smart. Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned. David Gardner owns shares of Sierra Wireless. The Motley Fool owns shares of Sierra Wireless. 

More on Tech Stocks

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

4 Reasons to Buy Kinaxis Stock Like There’s No Tomorrow

Kinaxis stock has a strong past. But there is even more to look forward to from this top tech stock.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

The Future of AI: Best Canadian Stocks to Buy Now

Here are two of the best AI-focused stocks in Canada that you can consider adding to your portfolio before it’s…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

2 TFSA Stocks to Buy Right Now With $7,000

Are you looking for growth stocks that can help you maximize the tax-free withdrawals of the TFSA? This article is…

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy Right Now for Less Than $1,000

Not all tech stocks are the risky investments that many think they are. Which is why we're focusing on the…

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.
Tech Stocks

Where Will Open Text Stock Be in 5 Years?

OpenText stock is one of the few tech stocks that's been around for decades. But does it have what it…

Read more »