Is CalAmp Corp. a Buy After Post-Earnings Sell-Off?

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When does another record quarter of revenue, earnings, and substantial growth across multiple units equate to losing 10% plus in valuation? Apparently, the answer is when CalAmp (NASDAQ: CAMP) naysayers take the stage and bemoan guidance for the current quarter.

Granted, there are times when poor guidance demonstrates little to no growth or similar troubles indicative of possible long-term problems. But in CalAmp's case, the concerns that have driven its stock price down so significantly the past week simply aren't warranted. And that's great news for long-term investors in search of growth.

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What's not to love?

With its market capitalization of $747 million, CalAmp and its industrial and connected automotive suite of offerings flies under a lot of investor's radar. But CalAmp's Internet of Things (IoT) connectivity solutions translate to almost limitless upside.

There are an estimated 8.4 billion IoT connected "gadgets" already in use, and that figure is expected to continue growing. CalAmp's suite of products include mobile resource management (MRM), telematics, and cloud Software-as-a-Service (SaaS) solutions. Seamlessly connecting the billions of IoT gadgets, as well as collecting and collating the reams of data generated, is CalAmp's strength and represents significant upside.

Once again last quarter, virtually every CalAmp unit reported outstanding growth. The $93.7 million in revenue was a 12% improvement compared to a year ago, and it was a fiscal 2018 third quarter record. CalAmp also initiated a new SaaS fleet management solution to a "large state government agency" last quarter that is expected to positively affect results heading into next year.

Caterpillar is not only a longtime customer of CalAmp's, the partnership continues to expand with each passing quarter. The $13.2 million in revenue Caterpillar generated in the third quarter was yet another record, and it was an eye-popping 24% increase sequentially. The sequential growth is particularly impressive given that the second quarter's $10.5 million in Caterpillar-related revenue was also a record.

On the earnings-per-share (EPS) front, CalAmp's $0.33 obliterated last year's $0.04 a share loss, and its all-important telematics division generated $77.78 million in revenue, up 15% year over year. It should be noted that CalAmp received $13.3 million in the quarter as part of an on-going legal settlement that boosted operating cash flow and EPS. There are several more payments expected in the quarters ahead totaling an estimated $18 million.

But even excluding the one-time legal payment, CalAmp's EPS still soared 47% to $0.31 compared to last year's $0.21 a share. So, why is CalAmp's stock down 12% since sharing its good news on Dec. 21? For all the wrong reasons, and therein lies the opportunity.

You're kidding, right?

A year ago, CalAmp ended its fiscal 2017 year with $86.1 million in revenue, up 46% excluding its divested satellite business. This quarter's guidance of between $91 million to $96 million in sales was somehow disappointing, and the sell-off began.

At the mid-point of revenue expectations, CalAmp's sales in the current quarter would be a 9% improvement over a year ago. At the high end of guidance, which CalAmp generally reports each quarter, its revenue gain would be nearly 11.5% year over year.

If CalAmp bears are seeking a legitimate concern, it would be the growth of competitors including Canada-based Sierra Wireless (NASDAQ: SWIR). CEO Jason Cohenour cited Sierra's IoT sales growth and new customer acquisitions behind its 13% jump in revenue to $173.2 million last quarter. That's an impressive top line given Sierra is a slightly smaller IoT provider than CalAmp as measured by market capitalization.

That said, with the explosive growth the IoT connectivity market represents, there's certainly enough room for relative upstarts CalAmp, Sierra Wireless, and a host of others. The bottom line is, don't let the panic-driven sell-off of CalAmp stock scare you off. Rather, recognize it for what is: An opportunity.

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Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool recommends CalAmp. The Motley Fool has a disclosure policy.