VIDEO Sequans Communications ( SQNS - Free Report) is a Zacks Rank #2 (Buy) and has style scores that may have you thinking twice about this stock. The Growth Style Score is a “D” while the Value Style Score is an “F” – which is eerily similar to the grades I used to received when I was in school. I would tell my parents that the D’s and F’s meant I was “Doing Fine” but they didn’t buy it.
Sometimes I don’t buy the style scores, but I always buy what the Zacks Rank is selling. Let’s take a look at this stock and figure out why this is a Zacks Rank #2 (Buy) and if it should be something on your radar.
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Sequans Communications is a fabless designer, developer and supplier of 4G semiconductor solutions for wireless broadband applications. Solutions offered by the Company include baseband processor and radio frequency, or RF, transceiver integrated circuits, or ICs, along with signal processing techniques, algorithms and software stacks. Its solutions can be applied in devices like: smartphones; USB dongles; portable routers; embedded wireless modems for laptops, netbooks, tablets, and other consumer multimedia and industrial devices; consumer premises equipment, or CPE, such as residential gateways; and base stations. Sequans Communications S.A. is based in Paris, France.
On May 2, the company posted a loss of six cents, but the Zacks Consensus Estimate was looking for a loss of eight cents. The 2 cent beat was good for a 25% positive earnings surprise. As a result, investors pushed shares higher by more than 13% in the session following the report.
This was the second beat in the last three quarters and helped drive analysts to decrease the loss per share they expect for this year.
Back in January, the Zacks Consensus Estimate for 2017 was calling for a loss of 21 cents. That kicked higher to 20 cents in February and remained at that level through April. Following the better than expected results, the Zacks Consensus Estimate is now at a loss of 18 cents.
As we are nearly in June, investors are beginning to look more at 2018 numbers and things are looking good in that department for SQNS. In December the Zacks Consensus Estimate was calling for a loss of 3 cents, but the current number is a gain of 2 cents. That is a big swing and investors love to be in the stock as it moves from a loss to a gain on the bottom line.
With negative earnings, the forward PE that we tend to rely on is not meaningful. The price to book multiple shows an absurdly highly 27x compared to a 4x industry average. This could be a result of different accounting standards, but more investigation is warranted.
The key to me is the revenue and earnings growth the stock is set to see in 2017 and 2018. Analysts are projecting revenue growth of 45% this year and 55% next year. They are also looking for earnings growth of 45% this year and 108% next year. Both sets of numbers are many, many multiples of the industry average.
With growth like that (for earnings and revenue) I am left to wonder how this stock has such a low style score. In any event, I see the growth coming and so do investors that like low priced stocks like this.