Summary
- SMSI's progress has been delayed by a longer merger and integration process, as well as by the COVID-19 pandemic.
- During this time, SMSI's opportunities have multiplied, giving them a chance to be stronger than ever in 2021.
- Investment in human resources/R&D has dampened SMSI's 2020 EPS, but will likely lead to explosive growth in 2021.
- I believe SMSI is near landing a material deal with a US Tier 1 carrier (besides T-Mobile) for its high-margin SafePath platform.
“Smith Micro (SMSI) is the gift that keeps on giving,” I told several of my colleagues the day after the company’s most recent Q2 2020 conference call. That might seem like a strange thing to say when my number one holding dropped 10% after what most investors evidently interpreted as a disappointing Q2 conference call. But for me, SMSI dropping 10% was yet another gift, another opportunity to continue accumulating shares in a company whose enormous potential I believe most market participants do not yet understand.
In this post-COVID-19 environment, many retail investors have become accustomed to quick, short-term gains in popular retail trading names. As a result, they seem to be showing little interest in or patience for companies that guide their shareholders—as SMSI did on their Q2 call–to wait until 2021 to reap the rewards of the hard work in process. In its August 2020 announcements, SMSI disclosed substantial progress toward winning new customers that will rapidly grow their revenue, EPS, and cash flow.
As the broader market has turned away from SMSI following their August 2020 update, many in my network—people who have exhaustively researched both the company and the industry landscape in which it operates—happily acquired shares of SMSI, excited by the news that the company continues to progress with its products and its relationships with mobile carriers. My interpretation of their Q2 conference call was that the company was more bullish—and more transparent—than ever. Subsequent research and interviews have only bolstered that opinion. In this article, I will explain why I believe SMSI is now by far the best risk vs. reward scenario I am following. While risks clearly exist for SMSI, shares could realistically quintuple or more over the next 1-2 years.
SafePath: Expect New Customer Wins
On February 3, 2020, I published an article on Seeking Alpha, in which I indicated SMSI was on the verge of a deal with Canadian carrier Telus (TU). I came to this conclusion based on research conducted by me and several colleagues. I highlight this because we became aware of this deal long before anyone in the market was aware, and published these findings on Seeking Alpha almost six months before SMSI announced the deal and TU rolled out the Telus Tracker+.
Today, I am sharing similar research findings and going on record that I believe SMSI will officially sign at least one major carrier to its SafePath platform within the next six to 12 months. Honestly, I am quite confident this will happen within the next six months, but due to the continued uncertainty of the COVID-19 pandemic, investors should be prepared for possible delays to product launches by the carriers. Below, I will highlight what I have learned through my own research and note how those findings seem to correspond to public statements made by SMSI management on their most recent conference call.
