This small-cap stock has a number of catalysts that should boost revenues and profits in the near-term.
Zoom Telephonics, Inc. (ZMTP)
From S.A. Advisory
Zoom Telephonics, Inc. (ZMTP) designs, produces, markets, and supports communication products under the Motorola and Zoom brands. The company’s worldwide licensing agreement with Motorola includes cable modems and gateways, DSL modems and gateways, cellular modems and routers and sensors, range extenders, home powerline network products, and MoCa adapters.
Revenue exploded from $18 million ending 2016 to $29.4 million ending Dec 2017. Losses narrowed dramatically from .21 to only .09. Note: most of loss for 2017 was from sales tax owed to Amazon for products sold via website. Excluding the adjustment for the Amazon-related sales tax liabilities, net loss was only .04.
A new 13G filing discloses a seller that has weighed on the stock and actually has created a flatline share price for a long period of time. It appears the “trust” that has been selling is almost out of paper! This trust had 1.3 million shares and as of Dec 31, 2017, the share count had dropped to a mere 84K. This large overhang is gone and will only add to potential upside for ZMTP shares during 2018 and beyond.
During the past two years, the company has seen revenues grow by 60+%/year and the stock has floundered. Upon review of the presentation mentioned above it will be evident that with a whole slew of new products and worldwide reach that revenue for 2018 could easily surpass $40-$45 million and show a very healthy income/fully diluted shares.
As Zoom’s reach extends worldwide, the introduction of many new products and stronger worldwide economic growth will only enhance ZMTP’s ability to create attractive returns for the shareholder.
Zoom’s business model is attractive. ZMTP’s operation requires minimal fixed assets: product manufacturing is outsourced to third-party manufacturers in Asia and sales are executed via third-party digital retailers (like Amazon) and third-party brick -and-mortar retailers (like Best Buy, Wal-Mart, and target). Zoom is responsible for product design, testing, qualification, and marketing, as well as for the oversight of its distribution network.
Revenue for the 4Q exploded up 72% compared to the 4th Q of 2016. Gross profit was $3.2 million vs $1.4 million for the same period. Excluding the adjustment for the Amazon-related state sales tax liabilities, net income was $444k or $.03/sh.
We believe that there are so many positive catalysts that ZMTP has ZERO downside risk and upwards of 200% upside during 2018.
We believe that ZOOM will easily reach $40 million during 2018 and estimate that the company can earn between .20-.25 for calendar year 2018. The company is growing by 60+% and if we assign a conservative PE of 25 then a share price of $5 to $6.25 should easily be in the cards. At present we a have PSR of 1.1 (severely undervalued valuation. A value of 3 is considered fairly valued). A PSR of 3 would yield a $7.00 share price.
The company has NO long-term debt, a $3 million-dollar line of credit that has been untapped and attractive cash flow. It does not appear that it needs additional working capital, which is very positive for current shareholders because of resulting dilution. It is very possible that this company is getting ready for NASDAQ listing (just seems to be the right time for this emerging growth opportunity).
We rate Zoom Telephonics (ZMTP) with our strongest buy rating with a $6-$7 target within 12 months.
William Velmer, S.A. Advisory, www.saadvisory.com, 949-922-9986, April 1, 2018