Will CalAmp Earnings Build on Last Quarter's Success?

Source: CalAmp.

Throughout the first half of 2014, CalAmp disappointed its shareholders, as the specialist in machine-to-machine communications failed to live up to its potential and saw its stock's value cut in halfat one point. Yet while traders panicked, long-term investors saw the prospects for a rebound, and the company's stock soared last quarter after CalAmp announced much better earnings results. Coming into Tuesday afternoon's fiscal third-quarter financial report, shareholders are anxious to see whether CalAmp can build on its October success.

CalAmp has looked to take full advantage of the Internet of Things phenomenon. With its emphasis on helping various devices communicate with each other, the company has a natural path to huge growth as more manufacturers embrace the possibility involved in building connectivity into their products. Yet CalAmp faces plenty of competition in the rapidly growing space. Let's take an early look at what has been happening with CalAmp over the past quarter and what we're likely to see in its report.

Stats on CalAmp

Source: Yahoo! Finance.

Can CalAmp stay connected?Investors have had mixed views in recent months about CalAmp's future potential , reining in their earnings expectations for the last quarter by $0.02 per share but boosting their projections for fiscal 2016 earnings by about 1%. The stock has held onto most of its gain from its favorable fiscal second-quarter report, climbing 20% since the beginning of October.

The most interesting thing about CalAmp's recent recovery is that it has not really come from dramatic strength in the company's fundamentals. In the latest earnings report, the company continued its string of quarters with slowing growth in revenue and earnings per share, and CalAmp's guidance pointed to further slowdowns ahead. Even with the dramatic shift in its business toward its wireless datacom division and away from its traditional satellite business, CalAmp managed only minimal sales growth last quarter, and most investors expect a slight decline in revenue for the quarter ended in November.

Source: CalAmp.

Yet CalAmp has several advantages that should help push it higher over the long run. Unlike fellow Internet of Things play Sierra Wireless , CalAmp is profitable right now, and its valuation reflects the lack of confidence in the company's long-term potential to grow earnings. Moreover, with ample cash flow available, CalAmp can seek out smart strategic acquisitions or make other investments in growing its business more quickly.

One major focus in this quarter's earnings report will be how the wireless datacom division does with some of its biggest customer segments. CalAmp has worked extensively with Caterpillar to improve communications capabilities for the construction-equipment giant's heavy machinery, with the goal of having Caterpillar products offer more to their customers. At the same time, CalAmp also hopes to build closer relationships with insurance companies to gather data relevant to underwriting practices and claims review, as information collected from vehicles or other insured property can tell insurers more about customer behavior and help them price their insurance products more accurately.

Source: CalAmp.

Longer term, CalAmp investors also must look at the company's ability to tap other markets. For instance, building greater connectivity into vehicles could help automakers and government regulators better assess safety and even create new safety-oriented features for future models. Similarly, areas such as healthcare and public services have ample opportunities for the application of Internet of Things technology, and CalAmp is well positioned to claim its share of those growing markets as well.

In the CalAmp earnings report, investors should look beyond the most recent quarter's results to see what the company expects from its long-term future. With so much potential to serve needs in the Internet of Things that people haven't even discovered yet, CalAmp needs to focus on the best possible strategic vision and on moving aggressively to execute on that vision.

The article Will CalAmp Earnings Build on Last Quarter's Success? originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends CalAmp and Sierra Wireless. The Motley Fool owns shares of Sierra Wireless. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.