5G Could Be Huge for This Small-Cap Tech Stock

INSG Stock Deserves a Look

If you do a search of the best 5G stocks, large-cap blue-chip tech companies are usually the first ones to show up. Indeed, there are large tech stocks that are well positioned to capitalize on the 5G boom.

However, keep in mind that, if a company is already serving a substantial portion of the market and is generating tens of billions of dollars in sales every year, it would take a big increase in the addressable market size and/or a big boost in its competitive advantage for it to earn much bigger sales revenue in the 5G era.

Intuitively, it’s probably easier for a company to go from $200.0 to $400.0 million than it is to go from $20.0 to $40.0 billion. And that’s why smaller companies can sometimes generate bigger percentage increases in their sales figures.

And that’s also why small-cap stocks often make big swings. Admittedly, they tend to be more risky than their large-cap counterparts, but with the right small-cap stock, investors can sometimes double, or even triple, their money in a rather short period.

One company that has been delivering serious returns to its shareholders is Inseego Corp (NASDAQ:INSG).

Inseego has a market capitalization of around $1.1 billion at the time of this writing, so it is still a small-cap stock (generally defined as a company with a market cap between $300.0 million and $2.0 billion). And 5G could take its business to the next level.

Let me explain.

Inseego is a technology company headquartered in San Diego, California. It operates through two main business units: “4G/5G IoT & Mobile Solutions” and “Enterprise SaaS Solutions.” (Source: “Corporate Presentation June 2020,” Inseego Corp, last accessed July 16, 2020.)

In the 4G/5G IoT & Mobile Solutions segment, the company offers routers, gateways, modems, trackers, hotspots, and HD Voice over LTE (VoLTE), among other products.

Its Enterprise SaaS Solutions segment provides cloud telematics solutions and subscription management to small and medium businesses, enterprise fleets, and governments.

And even though this small-cap tech stock does not make headlines very often, it is a part of the 5G ecosystem.

In the first quarter of 2020, Inseego shipped 4G and 5G mobile products to all major operators in the U.S., all major operators in Canada, and some international operators. Moreover, the company saw a surge in demand worldwide for all its “MiFi” 4G LTE and 5G hotspots, USB modems, and “Skyus” products. (Source: “Inseego Reports First Quarter 2020 Financial Results,” Inseego Corp, May 6, 2020.)

And Inseego is just getting started. For the second half of 2020, the company has five 5G mobile broadband and three fixed wireless access launches planned with six operators.

The best part is that, while 5G adoption is at an early stage, Inseego is already churning out some very impressive growth rates.

In the first quarter of this year, the company generated $56.8 million of revenue, representing a 17.1% increase year-over-year. The strong top-line growth was driven by a 23.2% year-over-year increase in IoT & Mobile Solutions revenue and a 4.3% year-over-year increase in Enterprise SaaS Solutions revenue.

Notably, Inseego’s non-generally accepted accounting principles (GAAP) gross margin for its IoT & Mobile Solutions segment expanded 440 basis points quarter-over-quarter.

The company achieved positive operating cash flow in the first quarter and also expects to achieve positive operating cash flow in full-year 2020.

Now, the COVID-19 pandemic has sent shock waves across the economy. But for Inseego, the company actually sees evidence that remote work, online learning, and telehealth trends could drive higher levels of demand for its products.

While the company is yet to report its second-quarter results, it is projecting revenue of $75.0 to $85.0 million. That would mark a substantial increase from the $55.9 million revenue it earned in the second quarter of last year.

As for the full year, Inseego stock investors could see some very impressive results.

In an earnings conference call in May, Inseego’s Chairman and Chief Executive Officer Dan Mondor said, “With numerous 5G customer launches in the second half, combined with the unanticipated demand surge and our expectation of a new normal post-COVID-19. We see this year as a groundbreaking year for Inseego.” (Source: “Inseego Corp. (INSG) CEO Dan Mondor on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, May 6, 2020.)

Inseego Corp (NASDAQ:INSG) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Despite being a lesser-known ticker, INSG stock has served investors well recently. Year-to-date, it’s up a whopping 46%.

For a small-cap tech stock, a catalyst as strong as 5G could keep it on a nice upward trend.