DragonWave, Inc. (DRWI) shares were up 19.5 percent on Friday, June 27 after CIBC analysts boosted their price target from $1 per share to $3. After years of operating losses, the company has started to show big upside potential this year.
After the year's heavy operating loss, DragonWave now expects revenue to grow approximately 60% over the revenue achieved in fourth quarter of fiscal year 2014. The price soared 26.8% in a day after that announcement, with trading volume of 5.6 million shares representing 19 times its three-month's daily average.
2015 Q1 results will be posted after the close of markets in North America on July 9.
A Deadly Blow Led to Years’ Consecutive Loss
Like many other companies in the microwave backhaul industry, DragonWave has suffered a lot, as capex spending on 4G/LTE network rollout has been slow.
The situation got rapidly worse when its major customer Clearwire halted their network rollout in 2010. Before that, with Clearwire’s completed 5400 towers using DragonWave as their suppolier for microwave backhaul technology, which brought $175 million revenue to DragonWave. Because of the company’s over reliance on its major customer, DragonWave stock dried up quickly after, from its peaked price at $13.53 in January 2010. The price plummet to $10 soon in April 2010, by 2011 August it sank under $4 per share. The stock further went down in 2012 and 2013 and by 2014 calendar year the price was under $2.
Positive but Suspicious
Even though the signal of turnaround, some analysts still rate DragonWave a sell even though the company has started to turnaround. For conservative investors, DragonWave has unpleasant historical performance in stock.
Its stock share price performed poorly compared to the year-ago period. After it plunged to $1.10 per share last November from 52-week's high $3.49 a share, though it has rebounded somewhat the price has never broke past $1.70.
However, on some level, the stock's sharp decline last year is a positive sign for future investors because it's cheaper. Plus, this year the stock has not yet restored its 52-week's high in the first half of year, though, but at least it remained steady. With some major orders from telecom companies and improvement in the Nokia (NOK) relationship, the stock should lift further in 2014.
Combined the company's positive bookings for fiscal 2015 Q1 revenue, DragonWave seems to be back in the game.
Back to The Game
DragonWave has been active throughout the first half year. The company's 2014 stock got a flying start by signing a strategies sales agreement with Xi'an Potevio Communications, an ICT subsidiary of China Potevio Corporation. The stock surged 23.24% after the market opened the next day and ended up 33% from its previous close.
In January the company was also selected as a microwave solutions provider for Gogo's (GOGO) ongoing expansion. Gogo has already used DragonWave products in their services, and under the new deal DragonWave will provide the backhaul connectivity for Gog's in-flight Wi-Fi systems.
The company started to expand its product portfolio with introduction of the Harmony Eband, a lightweight radio operating in the 70-80 GHz spectrums with low-energy consumption in Feburary.
In April Nokia elected a new CEO position and signaled a renewed focus on expanding its telecom networking business. In Charge of DragonWave’s joint relationship, Nokia is going to be investing more than before on growing customer base.
On May 28, nationwide Indian Telecom and Broadband Service Provider, Jio Infocomm Limited selected solution for LTE network. DragonWave will provide several thousand turnkey Horizon Compact+ links to support the Indian company's plan to build nationwide 4G/LTE networks. DragonWave's Indian joint venture, DragonWave HFCL, is also providing served as part of the deployment. DragonWave's stock gained 11.9% to $1.42 after the announcement was made.
Also, DragonWave is expecting SoftBank's purchase of Sprint to bear fruit in terms of plans to finish what Clearwire started several years ago. Softbank has intention to spend $16 billion on the ET/4G networks of Sprint to make it compete with Cerizon and AT&T. Picking up what Clearwire left several years ago, DragonWave is expecting another $150 million in the coming 3 years if Sprint start to purchase their microwave products again.
In addition, DragonWave’s future can be more robust since the rest of the world has shown signs entering into 4G/LTE networks with microwave products.
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