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Why Sierra Wireless (TSX:SW) Stock Has Surged 79% in 2022

·3 min read
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Written by Ambrose O'Callaghan at The Motley Fool Canada

The S&P/TSX Composite Index climbed 43 points to close out the previous week on August 5. Base metals and battery metals led the way, while the S&P/TSX Capped Information Technology Index suffered the steepest slide at just over half a percentage point. Today, I want to zero in on a tech stock that has outperformed most of its peers in 2022: Sierra Wireless (TSX:SW)(NASDAQ:SWIR).

How has this tech stock fared so far this year?

Sierra Wireless is a Vancouver-based company that provides device-to-cloud Internet of Things (IoT) solutions to a domestic and international client base. Shares of this tech stock have shot up 79% in 2022 as of close on August 5. That has represented all its gains in the year-over-year period. It has soared over 100% in a six-month span.

The Business Research Company released a report on the state of the wireless telecommunications market. It projected that the global wireless telecommunication carrier market would grow from $797 billion in 2021 to $1.14 trillion in 2026. That would represent a compound annual growth rate (CAGR) of 7.5% over the forecast period.

Should investors be encouraged by Sierra’s recent earnings?

This company released its preliminary second-quarter (Q2) 2022 results on August 2. Sierra’s stock spiked on the same day as it was announced that it had entered a definitive agreement to be acquired by Semtech Corporation. Semtech is a California-based supplier of equipment for consumer, enterprise computing, communications, and industrial end-markets. That spurred Sierra stock to nearly hit the $40 price mark. Semtech will fork over $1.2 billion to acquire Sierra.

That big move should spur Canadian investors to look at Semtech, as it bolsters a position in the wireless space. It also means that we will be saying goodbye to Sierra as a publicly listed company. Still, it is worth taking one more look at its recent preliminary earnings release. Investors can make a quick buck in the near term on its shares.

In Q2 2022, the company expects preliminary revenues to be between $185 million and $189 million. Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is projected to be between $21 million and $23 million — up from its first-quarter 2022 adjusted EBITDA of $15.8 million.

Sierra delivered revenue growth of 60% to $173 million in the first quarter of 2022. It also bounced back to profitability after posting an adjusted EBITDA loss of $4.4 million in Q1 2021. These strong results likely bolstered the case Semtech had made for the targeted acquisition.

Sierra: Is the stock worth buying today?

Shares of this tech stock are still trading in favourable value territory compared to its industry peers. This comes after its spike following the acquisition news. It was on track for very strong earnings growth before the merger was revealed. Sierra may be heading for Semtech’s stable, but Canadian investors should still look to target tech stocks in the wireless space. This market is well positioned to deliver impressive growth in the years ahead.

The post Why Sierra Wireless (TSX:SW) Stock Has Surged 79% in 2022 appeared first on The Motley Fool Canada.

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See the 5 Stocks * Returns as of 8/8/22

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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

2022