Miami, FL – June 5, 2020 (Emerging Growth NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on Post Pandemic Investment Ideas.
The pandemic made us realize that we can connect remotely and that some employers and employees are realizing some of the benefits of social distancing. The increase in bandwidth usage and the migration to teleconferencing has created a real opportunity for fledgling telecoms.
According to Forbes, preliminary estimates suggest social distancing pushed up internet usage by 70% and increased streaming by 12%. Fledgling companies like IQSTEL, Inc. (IQST), which was up 56% from mid-May, have ultimately become the beneficiaries of the surge as people turn away from offline (brick and mortar) to online solutions.
Social distancing will eventually come to an end as governments and agencies around the world have been working on a vaccine, but the question on investors’ minds is: Will this trend – the surge in Internet usage – stick? Highly likely. The world economy is under considerable stress so the new companies that will replace the pre-COVID economy companies will be formed for all intents and purposes to take advantage of the ease of running a business virtually. This article will explore some potential investments in mega-caps, but also point out opportunities in smaller names that could really enhance investor returns.
Unearthing the investment opportunities
So which companies should investors look at? The following companies are expected to be major beneficiaries of the explosion in bandwidth during the lockdown period. Skeptics thought that such an increase in usage could strain the network infrastructure or potentially collapse it. However, as we are starting to recover, it is evident in the numbers that the increased bandwidth will be the new normal.
- Amazon (AMZN)
- Google, Inc. (GOOG)
- Microsoft Corporation (MSFT)
- Zoom (ZM)
- Netflix (NFLX)
- Teladoc (TDOC)
- Electronic Arts (EA) and Activision Blizzard (ATVI)
All these companies are relatively good bets and are well positioned to prosper in the post COVID economy.
Amazon (AMZN) is the largest ecommerce business but most importantly it is the largest provider of cloud infrastructure services and has an impressive digital ad platform. Despite the economic fallout of the pandemic, AMZN broke news that it had hired an additional 175,000 employees. Google, Inc. (GOOG), another great pick, is not just a leader in search and digital advertising but has also made significant inroads into Artificial Intelligence (AI), an area widely believed by experts to be holy grail in the world of technology today. GOOG has consistently invested in R&D to increase the computational power available to devices, an achievement that has given it a dramatic edge over its peers in AI. In 2019 it announced it had achieved “quantum supremacy” with its Sycamore processor, solving a computation in 200 seconds that would take the world’s fastest supercomputer 10,000 years.
Microsoft Corporation (MSFT) is a no-brainer, while Zoom (ZM), the videoconferencing service that became synonymous with working from-home, has handsomely rewarded patient investors who held on to their positions through the year, despite incessant concerns about its valuation. ZM’s $63 billion market cap (at the time of writing) is more than double its market cap during its IPO last year, which was over-subscribed 30 times, indicating that investors have been super bullish on ZM all the way through.
Netflix (NFLX) is another darling of Wall Street with as many, if not more, bullish backers than ZM. EA and ATVI are also good bets in the video game category, which overall, has benefited from people spending more time playing video games during the lockdown period. Electronic Arts (EA) and Activision Blizzard (ATVI) are particularly exciting plays in view of the fact that the next generation of consoles is expected imminently, with the PlayStation PS5 for example planned for” late 2020,” according to techradar.com. PS5 will dramatically increase demand for some of the popular games that EA and ATVI publish. Key flagship brands such as “FIFA” for EA and “Call of Duty” for ATVI are viewed as cash cows by many leading videogame sector analysts. It is also important to note that videogaming today is more social than ever thanks to highly engaged online gaming communities and the surge in Internet usage during the pandemic, which has compounded the growth of online gaming communities. This means that ATVI and EA, among other hot plays in the videogame category, are well positioned for sustained growth and could reward investors generously.
As investors assess the investment opportunities above, they also need to be aware of the investment opportunities in telecom stocks. The companies behind these stocks provide the physical network infrastructure and specialized technical services that support the Internet as we know it. Most of these companies are beginning to come into play in view of the fact that they have not only benefited directly from the surge in Internet usage, but have also been the beneficiaries of billions of dollars in new investments in recent months, no less from giants such as Facebook (FB).
A big catalyst for telecom stocks
Facebook’s recent $5.7 billion investment in Jio Platforms in India (the largest Foreign Direct Invest in India’s history) shows how valuable telecom companies are in the broader scheme of things and is seen as a big catalyst for telecom stocks overall. FB’s investment in Jio could be a signal of the value sitting in telecoms companies today, particularly those with strong exposure to high growth sectors, markets and geographies. Tellingly, GOOG is reported to be in initial talks to buy a stake of about 5% in Vodafone Idea, India’s third-largest telecom operator, the Financial Times reported.
Telecom stocks were already hot before the pandemic because of broader trends such as the roll out of 5G. Now the sector is hotter due to the surge in internet usage during the pandemic and the increased deal-making activity in the space by some of tech’s biggest names. Investors keen on profiting from telecom stocks need to be smart about their bets. Big names like Verizon (VZ), AT&T (T) and T-Mobile (TMUS) are strong and stable companies that have not only benefited immensely from the surge in Internet usage, but are also well capitalized to unlock future growth. However, they have limited upside potential because they are relatively mature businesses whose key strengths have already been priced into their stocks. For enhanced returns, smaller fledgling telecom companies offer a better chance.
Investors are paying attention to a small name
IQSTEL, Inc. (IQST) is a good place to start when looking at small cap telecom stocks. The U.S. based telecoms company has come into focus in recent weeks after it completed the 100% acquisition of IoT Labs Mexico, one of the leading Internet of Things (IOT) developers in Mexico that has developed a solution that will position IQST as one of the key technology partners in the Mexican gas LP market, which is in the processing of shifting to smart meters and other digital technologies to improve efficiencies and sales.
The telecoms industry in the U.S. and globally is dominated by a few big names for a good reason: it requires huge capital investment and has many barriers to entry, especially regulatory ones. The large players in telecoms all enjoy enormous economies of scale that smaller players may find harder to replicate.
This makes smaller telecom companies that have successfully cut out a niche for themselves like IQST very interesting investment candidates. Outliers like these usually have the potential to significantly outperform the market but are easy to miss due to their small size.
IQST has a modest market cap – $4.68 million as at the time of writing. Modest as it is, this valuation represents a blistering 56% jump from around $3 million in mid-May – you’d basically have turned a $10,000 grubstake into $15,600 if you held your stock during the period. The technicals suggest more action ahead. Investors, it seems, are beginning to pay attention to this company.
Interesting growth prospects
For a small company like IQST to survive in a capital intensive and oligopolistic sector (a sector with a handful of dominant players) like telecoms, it needs to be good at building partnerships and cooperating with the major players. Cooperation, not direct competition, is realistically the only route to success for a company in IQST’s position.
Has IQST been able to forge these winning partnerships? The data suggests it has. A look at IQST’s customer list and revenue trends over the past two years indicates that it has been able to monetize dozens of partnerships with some of the industry’s greatest names.
The company lists the following – among other industry notables – as companies it is interconnected with in the customer section of its website:
- China Telecom
- Telecom Italia (TIM)
- Portugal Telecom (MEU)
- Deutsche Telekom
- TATA Communications
- China Mobile
IQST has built these interconnections and partnerships through its subsidiary Etelix, suggesting that its management has mobilized the necessary human talent to coordinate business operations across borders and across different jurisdictions. Competent management and operational excellence are key factors to examine when deciding whether to invest in any company regardless of its size, sector or market environment.
Importantly, IQST has been able to transform the partnerships it has built with the world’s largest telecoms players into value for shareholders. It has registered healthy topline performance in recent years, an indication that the company’s management has what it takes to unlock future growth at a time when the surge in Internet usage has strengthened the company’s overall competitive positioning.
For the year ended December 31, 2019, IQST posted revenue of $18.03 million compared with $13.77 million a year earlier. These numbers reflect a 30.89% year over year increase.
For Q1, the most recent quarter of reporting, it reported revenues of $4,980,151, an increase of 20% over 2019’s first-quarter. “While the COVID-19 near-global-closure has affected many companies’ ability to operate, we continue to surpass expectations. Our business has stayed very strong through the COVID-19 pandemic as many businesses have expanded their work-from-home strategy, thus boosting intra-company telco services,” saidLeandro Iglesias, CEO of IQST.
“We continue to surpass expectations” – Leandro Iglesias, Chairman, President and CEO of IQST.
From its financials, IQST’s gross margins (gross profit as a percentage of total revenue) have been relatively low (less than 10%) in recent years, despite the impressive sales performance over the same period. This is not unique to IQST but relatively common in the telecoms sector due to the high capex involved in sourcing equipment.
As the business grows, particularly now that it is venturing into Mexico hot on the heels of an impressive Q1, IQST should be able to generate enough revenue to yield higher gross profits in absolute terms, even though its gross margins are likely to remain low due to the nature of its business. This should leave more cash in the business for operations, allowing it to grow and unlock shareholder value in a sustained way over time.
IQST’s operating loss stood at $647,012 on 12/31/2019 and $27,895 on 12/30/2018, according to its financial statements. It was basically flat on an operational basis, though net losses stood at 5.4 million last year largely as a result of interest expenses, which came in at $2.65 million on 12/31/2019, up dramatically from half a million a year earlier.
Any business running a low gross margins needs to either grow sales volume or keep a close eye on operating expenses in order to operate profitably over time. Sales growth is therefore by far the most important indicator for IQST, considering it can’t anchor its growth on cutting back costs.
If IQST can sustain the sales momentum witnessed in recent years and the past quarter, particularly now that the surge in Internet usage has positioned it for growth, it should be able to unlock value for shareholders.
The recent Mexico deal further sweetens the pot. The company’s CEO believes it could unlock new opportunities for the business in Mexico beyond the LP Gas market. “IoT labs and the iQSTEL team are already designing upgrades to expand the platform from LP gas tanks to general storage tanks, including gasoline, beverage, water and more,” said CEO Iglesias.
Comparisons and conclusion Some micro-cap telecom stocks worth comparing to IQST include Sonim Technologies (SONM), Cambium Networks (CMBM) and Shenandoah Telecom (SHEN). As earlier stated, the telecoms sector has many barriers to entry so the few small players that exist have over the years been able to cut out a good niche for themselves. The mentioned companies are no exception. They are all exciting. SONM makes heavy duty smartphones for professionals in technical fields like utilities and construction. CMBM is in the Wi-Fi space while SHEN is in the wireless and cable space, operating partly under the Sprint (S) brand and serving consumers and enterprises. Let’s see how they compare to IQST on several key metrics.
Overall, small cap telecoms companies are modestly valued from a P/S perspective. This means these stocks have the potential of rapidly accelerating in value should investments start pouring, which is likely, considering telecom companies are now in the crosshairs of analysts and investors following the surge in Internet usage during the pandemic as well as the fresh interest in the telecom sector from big names like FB and GOOG.
The 56% jump in IQST’s share price over the past few weeks to the current $0.10 per share suggests investors are beginning to believe in the company’s growth potential. If IQST can continue delivering on growth, the share price is likely to continue in its upward trajectory. Revenue growth is typically the strongest driver of share price performance for small companies like IQST.
In concluding, IQST is a good speculative buy for investors who understand how to profit from high risk high reward plays and are willing to back the company’s growth prospects, which are now more exciting following its foray into Mexico’s LP Gas market. For the more conservative investor, IQST is worth adding to your watchlist. It may be the smallest in its peer group, but post-pandemic investment ideas sometimes come in small packages.
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