Let me put it bluntly…
Venture capitalists’ returns make your returns look dismal. Particularly when it comes to investing in technology.
They get in first – and they get out with the most profits.
Face it… your strategy needs work.
Fortunately, I’m about to jolt your portfolio to life in today’s article. How?
With the accuracy of my technology stock screener, C.H.A.O.S.
- Shares of haptic technology firm, Immersion (IMMR), are up 7.7% since I ran the company through C.H.A.O.S. on May 10.
- Shares of communications equipment maker, Polycom (PLCM), are up 8.4% since May 14.
- And C.H.A.O.S. tagged a bigger winner with cloud-based media and software firm, Brightcove (BCOV). The stock has jumped by 27% since May 3.
The point? There’s always C.H.A.O.S. brewing somewhere, no matter the market conditions.
And I’ve just found the next round of it…
Is This Company Mad… Or Brilliant?
Founded in 1985 and based in Austin, Texas, Xplore Technologies (XPLR) designs tablets in the United States, Canada, Europe and Asia.
Well, you’re half right…
While those firms are rivals, Xplore’s tablets are specialized and cater to much more niche markets than just everyday consumers.
Its iX104 devices are designed to operate in more rugged conditions – extreme heat and cold, and able to withstand water, high winds, vibrations, and harsh impacts. Take a look…
So Xplore’s products are ideal for workers in sectors like oil and gas (refineries, pipeline inspection, etc.), transportation, military and defense, utilities, manufacturing and warehousing, and public safety.
With a market cap of just $50.8 million, we have to consider Xplore’s cash and overall financial position differently than a medium-sized or large-cap firm.
In terms of cash, however, Xplore is doing just fine, with $5.3 million in the bank and zero debt.
And the company’s top-line growth is terrific.
In the last quarter, Xplore scooped up $14 million in revenue – a whopping 136% more than a year ago, and the most it’s ever made in a three-month period.
For its strong top-line growth, however, Xplore didn’t bag any profits.
But that changed last year when the company nudged into the black for the first time, with net income of $306,000. Profoundly better than the $6 million-plus it lost in 2011.
So as Xplore’s top line continues to expand, management is digging the company out of the red. And when it comes to micro caps, there’s nothing more important than having a war chest of cash, a roadmap to profitability and a successful management team at the helm.
C.H.A.O.S. Meter: 17/20
As you’ve seen, Xplore Technologies makes pretty “rugged” tablets.
But they weren’t made for our clumsy mistakes…
Instead, Xplore pursues markets that behemoths like Apple, Google and Samsung don’t.
The company knows it’s working in a mega-growth industry – mobile technology. Demand is relentless from any sector you can name, but demand for Xplore’s products is coming from markets where tablets like iPads, Galaxy Tabs and Surfaces just aren’t going to cut it.
That’s where Xplore’s “rugged” technology comes in.
Its tougher tablets bring mobile computing into harsher environments – like military operations, construction sites, law enforcement and other forms of fieldwork.
Best of all… in true disruptive fashion, Xplore was the first company to bring this technology to market.
That’s why, despite being virtually unknown to investors, Xplore is highly revered in its industry.
- It won the “Best Rugged Slate-Style Tablet PC” from Pen Computing.
- It gained the “Editor’s Choice Award” from Laptop Magazine for its AllVue screen.
- And ABI Research ranked Xplore Technologies third in its 2013 Media Tablet Market report. Only Samsung and Apple scored higher.
C.H.A.O.S. Meter: 20/20
The rugged mobile computing market has seen a hefty bout of consolidation in recent years. For example…
- General Dynamics (GD) bought Itronix.
- Motorola (MSI) acquired Symbol in 2007 and Psion in 2012.
- Honeywell (HON) has been busy, buying Metrologic in 2008, EMS Technologies in 2011, and Intermec in 2013.
- And just over a week ago, Micronet Enertec (MICT) bought the Mobile Resource Management and Fleet Management division of Sweden’s Beijer Electronics (Sweden: BELE.ST).
What does this have to do with Xplore?
Well, having followed the company for some time now, it’s a prime takeover candidate for the larger companies above, or others looking for a market leader in this niche area.
Any buyout chatter would fuel the shares, of course. But in the meantime, the company needs to continue to develop new products, secure new relationships and orders, and boost both its top-line revenue and bottom-line profit.
This is the same trifecta that’s driven shares 82% higher over the past year.
With new products currently on the market – and new ones set to launch this year – expect the next boost soon.
C.H.A.O.S. Meter: 19/20
As Xplore’s surging revenue shows, the firm is doing just fine in the order department.
It closed out 2013 with $30.5 million in revenue – up 11% over 2012.
Much of that came from multi-million-dollar orders from the U.S. military for Xplore’s “ultra-rugged” lineup of products – the iX104C5.
But of Xplore’s $14 million in first-quarter sales, $4 million came from its new RangerX product line.
Xplore boasts 120 distribution relationships with companies like Dell, plus specialized system integrators like Psion, Moxx Mobility and PEAK Technologies. It also makes money from direct sales to end users.
For me, the only issue with Xplore is its reliance on two companies for a big chunk of its revenue. In 2013, Prosys Information Systems and VT Miltope accounted for roughly 28% and 15% of Xplore’s revenue, respectively.
C.H.A.O.S. Meter: 16/20
Xplore is well positioned in its market. But to grow from here, it needs to…
Build Existing Relationships: To achieve broader market penetration, Xplore is focusing on building relationships with companies that you’d consider rivals. For example, it recently signed a licensing deal with Microsoft, which will offer its Windows software on Xplore’s tablets.
Expand into New Markets: Xplore primarily earns money from the “ultra-rugged” tablet market. And it’s poised for serious revenue growth from its new XC6 ultra-rugged tablet lineup.
However, this niche area only accounts for 30% of the total rugged tablet market. That’s why, with the introduction of its lighter and less expensive “Fully Rugged” RangerX Android Tablet series, Xplore has entered new markets within retail, trucking, manufacturing and public safety. So its market opportunity has expanded from the ultra-rugged niche to the entire rugged tablet market.
Improved Manufacturing Efficiency: It’s not rocket science… if you want to cut manufacturing costs, turn to Asia. That’s why Apple outsources its manufacturing to Taiwan’s Foxconn (2354.TW).
Add Xplore to the list, as it recently established a partnership with Taiwanese manufacturer, Wistron (3231.TW), which offers a 40,000-man workforce and $20 million in production volume. It means that Xplore can now scale its production to meet increasing demand from its expanding product line.
The only hiccup here is competition.
Scaling becomes a lot harder when companies like Panasonic (PCRFY), Motorola and Honeywell are your chief competitors. Plus, other major brand names are entering the rugged space, which could eat into Xplore’s growth.
However, major competitors like General Dynamics and DRS Tactical Systems have dropped out of the area because they couldn’t compete with Xplore.
This speaks to Xplore’s impenetrable competitive advantages – longevity and impact. It’s the best in the business – and clients know it.
C.H.A.O.S. Meter: 19/20
OVERALL C.H.A.O.S. RANKING 91/100
Final Verdict: We have another landmark event here…
Xplore Technologies has become the first company to break the 90-point barrier. And it’s easy to see why…
- Its top-line growth is exploding – and finally resulting in profitability.
- It offers the most rugged lineup of products in its industry (a declaration that comes from its industry).
- It has realistic near-term and long-term accelerants.
- Its orders are growing (with the most growth happening right now).
- Its plan to scale the business higher is easily attainable – especially with its expansion into new markets.
- And Xplore’s management team is executing every goal it sets.
To top it off, company insiders own a hefty one-third of the shares. I suggest you join them.
Your eyes in the Pipeline,