Investors looking for a cheap stock that is widely considered to be a takeover target should consider BSM Technologies Inc., a Toronto-based company that helps customers track their vehicle fleets and fuel consumption, analysts say.
Shares of the company, which provides hardware and software for companies in the rail, construction and service sectors, are up more than 70 per cent over the past year.
The stock is still off its high of $3.40 in early 2014, but analysts are expecting it to regain some lost ground in the months ahead amid growth in subscribers, revenue and earnings.
BSM is also considered a likely takeover candidate because some of its industry peers were recently snapped up. And the company is getting increased attention from activist investor Crescendo Partners, its largest shareholder.
All eight analysts that cover the stock have a "buy" recommendation with a consensus price target over the next year of about $2, which is more than 30 per cent above its current price around $1.50.
"It's a profitable, nice little company," said Clarus Securities analyst Noel Atkinson, who has a $3 target on the stock, the highest among his analyst peers.
Mr. Atkinson points to momentum in the company's subscriber growth rate.
"That has really been the missing piece to the story," he said.
BSM is also one of the few companies of its kind that hasn't been bought – yet. "There is industry consolidation going on, and these guys are one of the very few that would serve as a great platform," Mr. Atkinson said.
Crescendo Partners said in May that it planned to start discussions with management, the board and other shareholders "concerning the business, operations or future plans of BSM." In June, BSM agreed to appoint three Crescendo nominees to its board.
Potential buyers could include private equity firms or wireless carriers looking for more subscribers. Analysts point to Verizon Communications Inc.'s purchase earlier this year of Fleetmatics Group PLC, which provides GPS tracking systems for commercial fleets, as well as its acquisition of mobile enterprise management software company Telogis Inc.
Still, investors and analysts say BSM will likely need to show more sales and earnings growth before it can lure potential buyers.
"The more they can prove out the model, the more value they can get," said Laurentian Bank Securities analyst Nick Agostino, who has a $1.75 target on the stock.
BSM reported revenue of almost $59-million for the fiscal year ended Sept. 30, up 92 per cent from $30.7-million a year earlier and driven by the acquisition of Webtech Wireless Inc. in the summer of 2015, which doubled the size of its business. Its subscriber base increased to 152,100, up from 78,500 a year earlier. Some of BSM's customers include FedEx, telecom companies such as Bell, Rogers and Shaw and most of North America's largest railways.
Aly Rahemtulla, BSM's chief executive officer, said the company has a "medium-term goal" to increase sales to $100-million.
"We think we are just a couple of chess moves away," Mr. Rahemtulla said in an interview, citing growth from existing clients as well as acquisitions. In October, the company bought Texas-based fleet management services company Mobi Corp.
Mr. Rahemtulla said the company is also focused on improving the customer experience to reduce churn and is consolidating products after the Webtech acquisition.
The company has no plans to pay a dividend at this time, Mr. Rahemtulla said. Instead, BSM has been buying back stock, which he believes is "the most tax-efficient way to return capital to shareholders."
Bruce Campbell, portfolio manager at StoneCastle Investment Management, said his firm sold the stock earlier this year after making a small profit and is looking at getting back in if the company's earnings and revenue continue to improve.
"It looks like the growth is now accelerating," Mr. Campbell said. "Is this the start of something that will be a multiquarter move in earnings?"
BSM's takeover potential isn't a sole reason to buy the stock, Mr. Campbell said, since it may not happen for years, if at all. However, he said a sale could certainly be a "bonus" for investors.