Palo Alto Networks In. 5G stock

Inseego Corp: Major 5G Push to Drive its Share Price Higher

Top growth areas in technology(NYSEARCA:XLK) include the cloud, chips, and 5G, which will provide strong tailwinds for applications related to the Internet of Things and machine learning.

 

By George Leong

 

The world of the future will demand higher bandwidth for 5G and 6G applications.

There are numerous ways to play the 5G market. You can invest in the big mega-caps or, if you want some really strong upside potential, take a look at small-cap Inseego Corp (NASDAQ:INSG).

INSG stock traded down to $3.91 during the March sell-off before staging an impressive rally to $15.25 on August 5.

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Since then, Inseego stock has retrenched below $10.00, where I view it as a compelling risk/reward trade.

Inseego Corp develops advanced mobile communications technologies for 5G systems and the applications that demand extremely high speeds.

The INSG stock chart shows the stock drifting in a wide sideways channel since June after rallying from the March low.

There is decent downside support for Inseego stock. If the company can deliver on its expectations, INSG stock could stage a breakout back toward its 52-week high, for a 50%-plus move.

Chart courtesy of StockCharts.com

Higher Growth on Horizon Supports Bull Case for Inseego Stock

As shown in the following table, the last five years haven’t exactly been good for Inseego Corp, in terms of revenue. The results have been lackluster, but the outlook gives investors some hope for INSG stock.

Fiscal Year Revenue (Millions) Growth
2015 $220.9 N/A
2016 $243.6 10.2%
2017 $219.3 -9.9%
2018 $202.5 -7.7%
2019 $219.5 8.4%

(Source: “Inseego Corp.” MarketWatch, last accessed November 27, 2020.)

The consensus revenue estimates have risen over the past year. Inseego is expected to drive up its revenue growth rate to 42%, to $311.6 million, this year and to 17%, to $364.6 million, in 2021. (Source: “Inseego Corp. (INSG),” Yahoo! Finance, last accessed November 27, 2020.)

While the revenue picture looks promising, Inseego will need to provide a pathway to consistent positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and profitability.

Fiscal Year EBITDA (Millions) Growth
2015 -$16.3 N/A
2016 -$14.8 8.7%
2017 -$3.1 79.4%
2018 $12.8 519.2%
2019 -$1.1 -108.3%

(Source: MarketWatch, op. cit.)

On a generally accepted accounting principles (GAAP) basis, Inseego narrowed its earnings-per-share (EPS) loss in 2018.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.99 N/A
2016 -$1.12 -13.1%
2017 -$0.78 30.2%
2018 $0.12 84.4%
2019 -$0.52 -324.0%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Inseego Corp is expected to cut its loss from $0.21 per diluted share in 2019 to $0.06 per diluted share this year.

The overriding view is that Inseego will be profitable in 2021, with a consensus profit estimate of $0.17 per diluted share. (Source: Yahoo! Finance, op. cit.)

Inseego is free-cash-flow (FCF)-negative, but given the ramping up of its revenues and the expected profitability in 2021, positive FCF could be near.

Fiscal Year FCF (Millions) Growth
2015 -$28.9 N/A
2016 -$8.0 72.3%
2017 -$16.4 -104.1%
2018 -$3.6 80.0%
2019 -$24.6 -583.3%

(Source: MarketWatch, op. cit.)

Analyst Take

I like the intriguing risk/reward situation for Inseego stock, driven by the strong tailwinds in the 5G space.

INSG stock trades at a reasonable 2.6 times its 2021 consensus revenue estimate. Inseego Corp’s growth potential should support multiple expansion and a higher share price.