I'm baffled by this morning's sell off. On a constant currency basis, revenue was up 35% and net income was up 44%. It seems investors are forgetting that forex should only negatively impact this year's results. Next year, if the USD remains at the same levels and assuming the business keeps growing at the same rate (which I don't see why it wouldn't given the introduction of two new products, the strong domestic growth, and the fact that they've only scratched the surface with international opportunities), we should see 40+% growth in net income. If the USD were actually to weaken even slightly, we could see 50-60+% growth rate in net income.
Run-rate sales is now $40.4M and at the current $1.68 stock price, the market cap is a $43.3M. Essentially, the stock is trading a bit above 1x sales which is absurdly cheap.
Here are my notes from the CC:
- Growth breakdown by region: US growth consistent with Q2, China sales near parity with last year's quarter, sequential decline in Canada due to 6% sequential decline of the CAD and weak economy (however still significant increase in volume and sales YoY which is quite impressive), ROW growth was down in Q2 and Q3 2015 compared to Q3 and Q4 2014 (however it isn't negative).
- High-profile opportunities, namely OEM (not at the factory level though) and customization shops, in the pipeline. XPEL is the one being contacted which is a testament to the effectiveness of their marketing strategy.
- New website in Q4 will feature a brand new content management system that will allow installers to share videos and pictures of installations to further driver business and create awareness around the products.
- Ryan expects a critical mass to be achieved for window tints early next year. The sales strategy is the same as the PPF film one. Historically XPEL has won lots of business by converting customers from inferior products, but the cycle can take some time.
- Replaced all marketing materials for customers at the company's expense to help drive adoption. The cost was $50k.
- The $250k increase in expenses from Q2 is partially due to the $50k marketing expense, $30k in new hires and the rest is divided among many other items -- no particular increase in one item. Expenses should remain stable going forward.