We provided coverage in the past about this tiny tech company with a great outlook: Edgewater Wireless Systems Inc. We wrote early this year that we considered Edgewater Wireless a Tech Stock to Buy in 2018, and last year we said it was a Edgewater Wireless was a ten-Bagger in the making. We still are convinced that this stock has a ten-bagger potential, but, based on its current course, it will take longer than expected. Its outlook is great, this is why!
Edgewater Wireless Systems Inc trades on the TSXV and has a market cap of $25M at the time of writing (nano cap, very high risk). We follow this company since a long time, and have always been excited about its prospects. In recent months this stock broke down, but it also published great news this week. Let’s revise what we know, and understand what it means for their future growth.
Edgewater Wireless: Shareholder dilution but visibly to support growth
On August 21st 2018 Edgewater Wireless Systems Inc. announced the closing of the first tranche of the Company’s previously announced $2 million private placement. Pursuant to this closing, the Company has issued an aggregate of 10,726,106 units at a price of $0.16 per Unit to raise aggregate gross proceeds of $1,716,177. On September 10th 2018 they announced the second tranche of the private placement.
This is shareholder dilution. The question is: why do they need this capital, and what’s their business case for future growth? We believe this quote provides the answer:
“It is intended that the proceeds from the offering will be allocated as follows: manufacturing and production to fulfill obligations with the company’s customers and to scale for cable industry requirements with customers like Mediacom Communications; focused engineering and product development; and working capital and operating expenses.”
On October 1st 2018 the company published Q1 (three months ended July 31st 2018) results. This is what stood out to us: “Successful launch of two new products into production in Q1’19 as well as the order backlog of $1,066,341.” Revenues are finally rising significantly. The company added: “Over the next 3-4 quarters, we anticipate some reduction in backlog and deferred revenue as we deliver against existing orders and secure new orders.”
To put some of these figures in perspective: the company booked a loss over its fiscal year 2018 of -3,867,431 on revenue of 72,607. On April 30th 2018 the company had 32,474,384 common shares.
The stock price decline was to be expected. The breakdown took place in August around the time the private placement was announced.
Edgewater Wireless: Traction seems confirmed with 5G roll-out
However, as seen on the above chart, there is strength since last week. Moreover, there seems to be a double bottom (September and end of October). This may be very encouraging, although the path higher will not be easy and immediate resistance sits at $0.19, less than 20% above Friday’s closing level.
Why is this stock showing strength after the breakdown of less than 3 months ago?
On October 1st the company published a company update along with its financial results. This is the quote that caught our attention:
“In July 2018, we were awarded Approved Vendor Status with Mediacom, the 5th largest Cable Operator in the USA – a significant milestone not only in proving our innovative WiFi3TM technology, but also, in integrating our aera.io solutions and family of FLUID controllers with a major Service Provider’s network operation. This milestone puts us alongside an established, incumbent vendor and positions us for growth in the upcoming quarters.”
This is finally a deal with a major company. Moreover, and more importantly, from a technology perspective, it shows how exactly their technology can be integrated with other technologies. It is telling on the company can and should create traction, a fundamental aspect of growth and critical success factor.
This week we got more signs of traction. This news item which is what we consider to be part of the 1% news that truly matters
“According to Market Research Engine, a global research and consulting organization, the 5G technology market size will exceed 90 million by 2023. As WiFi is imperative to 5G, evidenced by the majority of mobile carriers now using some form of WiFi calling, our working group’s solution stitches mobile and WiFi networks together,” said Eric Smith, Vice President of Product for Edgewater Wireless. “This allows carriers with vast WiFi networks to seamlessly open those networks, expanding 5G coverage in buildings and public spaces, which is essential to ensure users and IoT devices will have a high quality, and secure experience in the 5G networks of the near future. We are elated that WiFi3™ has been selected to advance this innovative technology.”
There we have it. Edgewater Wireless Systems seems to have found the way to market their breakthrough technology: high density WiFi in public spaces.
Our expectation is, based on the info in this article, that Edgewater Wireless will be a 10-bagger in the coming 24 months. This is a great time to add positions, although positions should be small as this is a nano cap stock.
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