Avigilon Update

If you have access to MF Canada, I suggest you check out today’s update on Avigilon. If not, here is a very brief summary.

…Avigilon’s performance of late has been ugly and deserves some communication. The only problem: There’s nothing really material to communicate. Since the company’s last quarterly earnings release some time ago, nothing has occurred or been publicly disclosed that would cause the sell-off we’ve seen in the stock. As far as the facts are concerned, by declining as it has, the stock has clearly separated itself from the underlying business… … nobody has any idea what’s up…

Stick to the facts. To reassure myself in these kinds of circumstances…, the first thing I do is look at the company’s balance sheet. Avigilon has no debt, $158 million in cash, and has been free cash flow positive over the past 12 months. There is absolutely zero financial risk at this point. That’s a good thing.

Next I consider valuation. At current levels, what’s the market telling us about this stock? To get a handle on this, I went searching for companies that share several of Avigilon’s characteristics. …Specifically, I was looking for companies that have a market capitalization between $500 million and $1 billion, are expected to grow revenues between 30% and 50% over the next year, carry an EBITDA margin of 15%-20%, and have no debt. There are no other companies like this in Canada, so I turned to the Nasdaq Composite…

Though Avigilon is trading a touch above the group on a trailing earnings basis (and note that many of these companies don’t even have positive earnings), it comes in well below on every other metric… Provided Avigilon’s results remain even somewhat in touch with expectations, and where they’ve been in the past, this gap is bound to close. At the very least, the spread should not get much wider…This is not an exact science by any means, but either way you look at these findings, Avigilon’s currently trading at a level that it doesn’t seem to warrant—at least based on the facts.

The Foolish Bottom Line None of this is to say that we’re not going to wake up tomorrow to a press release that indicates Avigilon is cutting its guidance… Still, in my mind, even this news has largely been priced in…it is close to impossible to try to take the temperature of a market that is irrational at least as often as it is rational. To be frank, we won’t be overly bothered if the company does cut guidance. We are only interested in knowing that the prospects of the business over the long term remain as they were when we first recommended this company.

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Thanks Saul. Thanks to this board, I have had Avigilon on my radar for the last couple of months. I finally bought an inital stake of AICOF at the end of day yesterday at 14.11 and couldn’t help but buy again today at 12.50. There may be a guidance cut coming, but this drop in the stock price seems way overdone especially for a business growing as quickly as Avigilon.

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Thanks for that update, Saul. I added to my position again earlier today.

Neil

I added to my position again earlier today.

Me too.
Saul

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I don’t understand the huge volume spike today, over 10x normal volume in AIOCF and about 4x normal volume in AVO.TO. Someone knows something . . . and that is what bugs me about this. Indiscriminate selling doesn’t usually produce this kind of volume. I am in for a 4+% position now, tempted to buy more.

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I don’t understand the huge volume spike today… about 4x normal volume in AVO.TO. Someone knows something . . . and that is what bugs me about this. … I am in for a 4+% position now, tempted to buy more.

Thanks for pointing out the volume, DJSka. (US volume is meaningless as the average is so small but the AVO uptick is for real). You might want to wait a few days to see what emerges before buying more. It might have been a mutual fund that dumped their position, or it might be something more sinister about to come out. Or it might be nothing at all. New brokerages are still coming out with Buy recommendations so the company isn’t hinting anything to analysts. It’s wait and see.

Saul

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I got a little more this morning at the open. Right now the price and volume are up, and the bid and ask are at $16.31 and 16.38 though the last trade shows at $13.09.

It seems crazy to me.

Tdonb

Bid and Ask are down at 13 again. They just announced announced the appointment of Margaret Herndon to vice president of global marketing and communications, effective immediately.

Prior to Avigilon, Ms. Herndon spent 10 years at Hewlett Packard (HP), holding senior leadership positions in software, enterprise services and the corporate marketing divisions of the company. In these roles, she led marketing and product marketing teams tasked with creating strategy, messaging and global launch campaigns targeting a C-level audience. Most recently, Ms. Herndon was vice president of global industry marketing at HP, where her team was responsible for creating campaigns and sales enablement programs for CIOs in the public sector, health and life sciences, banking, manufacturing, and transportation industries. Prior to HP, Ms. Herndon was vice president of marketing at TruLogica, a Dallas-based identity management software start-up organization. She is credited with helping create and launch TruLogica’s brand, moving it from a small identity management company to being acquired by HP.

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" Someone knows something" That was my reaction too.

Bogus moves designed to benefit short sellers usually are accompanied by media reports of some fictitious event. That hasn’t happened here, there has been no news of any significance . At least no public news.

So assuming prices of stocks are usually driven by events, there may be some event here that is known to some but not to most. Because stock price declines like this are not always random. So it doesn’t tempt me to buy more when a stock is declining, I don’t know why, and thus seem to have an information disadvantage.

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I don’t understand the huge volume spike today… about 4x normal volume in AVO.TO.

That was yesterday on a big drop. Well today AVO was up eight percent on even MORE volume. Go figure.

Saul

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Saul is AVO.TO / AIOCF a formal pick of one of the MF portfolios??
Or perhaps just in Canada?

JT

Saul is AVO.TO / AIOCF a formal pick of one of the MF portfolios??
Or perhaps just in Canada

Yes … Just canada

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Saul is AVO.TO / AIOCF a formal pick of one of the MF portfolios??
Or perhaps just in Canada? - JT

Hi JT, as far as I know it’s just a formal pick by Motley Fool Canada.

Hi Saul,
For me nothing has changed with Avigilon and I added on Friday for a third time
My total exposure is now close to 3.5%, depending where the stock is today. The volatility is huge and there must be something going on, today’s range was from 11.85 to 14.45, crazy.