By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 6/28/16 Sign up for Cabot Wealth Advisory—it’s free!
Avigilon (AVO.TO) – Toronto Stock Exchange Current Price 12.67; AIOCF: U.S. Over-the-Counter Current Price 9.69) is a leading designer, manufacturer and marketer of network-connected video surveillance systems, surveillance cameras and video analytics (software that scrutinizes video input). Its customers include police departments, schools, hospitals, prisons, airports and public transportation systems. Avigilon provides the security video systems for San Diego’s public transit system, Toronto’s Rogers Centre stadium, the entire University of Tennessee campus and many other venues. Avigilon is headquartered in Vancouver, British Columbia.
Avigilon’s stock price has been on a roller coaster ride since its debut in October 2011 and has dropped 63% during the past two years. Yet recent news from the company continues to be positive and sales are climbing rapidly.
Avigilon’s research goal is to upgrade surveillance cameras to high-definition quality, enabling its customers to protect against theft or terrorism by providing detailed images that can be used in court or by facial recognition software. The company’s cameras can identify faces and license plates from 46 meters (150 feet) away.
Avigilon has strengthened its infrastructure by acquiring a large building in Vancouver for the company’s new headquarters. And the company has moved into a new manufacturing facility in Texas, which will provide more efficient manufacturing operations and support more than $1 billion in revenue per year. Avigilon generated $370 million in sales in 2015 and will likely generate $1 billion within five years.
Avigilon boasts a very strong balance sheet with modest debt and ample cash. Management’s accelerated ramp-up in marketing, research, new facilities and employee hiring expenditures will crimp earnings in 2016, but the company’s $65 million in 2016 cash flow is more than sufficient. Small acquisitions will provide new technology and could boost sales and earnings higher than forecast.
The current 15.3 P/E ratio (current price divided by latest EPS) is easily justified by Avigilon’s growth prospects. Earnings per share will likely grow at a 16% pace during the next five years.
The sharp fluctuations in AVO.TO’s stock price are unnerving, but the wide swings provide profitable opportunities for nimble traders. Short-term investors have abandoned the stock because of decelerating earnings growth, but long-term investors believe Avigilon’s extra expenditures will lead to a surge in sales and earnings within the next couple of years.
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 more than double and reach my Min Sell Price of 32.00 on the Toronto Stock Exchange or 24.50 on the U.S. Over-the-Counter market within two to three years. I recommend that you buy AVO at the current price.
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From Cabot Wealth Advisory 1/20/16 Sign up for Cabot Wealth Advisory—it’s free!
Avigilon (AVO) is a leading designer, manufacturer and marketer of network-based video surveillance systems, surveillance cameras, video analytics and other security equipment. The company is small with $275 million in sales and a market capitalization of $825 million. Avigilon shares sell on the Toronto Stock Exchange under the symbol AVO and on the U.S. Over-the-Counter (OTC) Market with the symbol AIOCF.
Avigilon is selling at a bargain price and offers exceptional price appreciation potential.
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858 Beatty Street
Vancouver, BC V6B 1C1
Index Membership: N/A
Industry: Communication Equipment
Full Time Employees: 455