Tech Turnaround 2015

‘Tis the season for reflection on 2014, and in particular our Market Monitor picks. Today we will focus on a 2014 loser that we believe will turn into a 2015 winner.

Back in early March we featured RadiSys Corporation (NASDAQ – RSYS - $2.36) at $4.33. Doing the quick math, the stock is down over 45%. We whiffed on this one for this year, but believe this one could be a great rebound story for 2015. Here is a quick review on the Company that provides wireless infrastructure solutions for the telecom, aerospace, and defense markets in North America, Europe, the Middle East, and Africa. 

The Company offers advanced telecommunications computing architecture product family that includes a suite of integrated, application ready, and software-rich hardware products, such as carrier blades, chassis, disk modules, line cards, and processing and switch modules for computing/switching, deep packet inspection, digital signal processing, and platform software applications.  It also provides media resource function products comprising multimedia processing platforms for audio and video conferencing, voice over long-term evolution, voice over IP, video over IP, OEM, and enterprise customers, as well as IP multimedia subsystem telecommunication service providers and solution developers.  In addition, the Company offers Computer-on-Module Express products, which are designed for applications that require a standard processor and memory subsystem, and modular flexibility to retain key design-level IP on a separate carrier board; and rack mount servers primarily for medical imaging and diagnostic, test and measurement, and aerospace and defense submarkets.  Further, it provides Trillium software that enables the communication for telecommunications networks, including mobile and fixed line networks. Additionally, the Company offers end-to-end infrastructure solutions to manage and control the data flow within existing and next-generation wireless communications networks, as well as to provide voice, video, and image manipulation capabilities for network providers.

RadiSys returned to the black when it reported 3Q14 financial results in early November. The forward P/E is now at 12, well below the industry average of 23. The Company continues to churn out new and improved products and services and is well funded and capitalized to continue, with nearly $32 million in cash on hand and only $28 million in debt as of the end of 3Q14. A gross margin of 29% versus an industry average of 27% indicates the Company is optimizing its price point. Finally, a short float of 1.15% indicates that going long is now the trend for RSYS.

The overall growth in the technology sector should help RSYS in 2015. The average volume of shares has increased to nearly 120,000 per day over the last week since the stock hit a relative bottom of $2.10. An accumulation phase could be here. We think the RSYS is a $5 stock by the end of 2015

Have a great weekend!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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