The business derives the revenue from wireless carriers, automobile manufacturers and OEMs, advertising and end users. But the most revenue is coming from partnerships with wireless carriers who sell LBS solutions to their subscribers or customers. For the last three years, AT&T has accounted for around 34% to 37% of the company’s total revenue, and Sprint accounted for 37% to 55% of the total revenue. Besides, in 2012, Ford represents 12% of its sales. The business partnership agreement with Sprint will expire at the end of 2015; the agreement with AT&T expires in March 2013 and with Ford in May 2014.
Profitability and Comparable Valuations
Here is the five-year snapshot of business operating figures from its most recent annual SEC filing:
Source: SEC filings
In the last five years, TNAV is the fast grower in any operating metrics. The annualized growth for revenue, operating income and net income is 35%, 56.5% and 47.7% respectively. In addition, following Google Finance's table, TNAV is the one that delivers the highest operating margin, net margin and return on investment among its peers in the stock market.
It’s interesting to note that Garmin (GRMN), the provider of GPS navigation, communication and information devices being enabled by global positioning system (GPS) technology, is having similar return on average assets, on average equity and similar operating margin. Garmin is trading at nearly 14x P/E and 2.53x P/B whereas TNAV is trading at only 8.33x P/E and 1.16x P/B. The huge difference in valuation might be due to the difference in size. Garmin’s market capitalization is $8.72 billion and the whole TNAV is worth only $254.3 million.
However, Garmin’s revenue source is more diversified than TNAV’s. Garmin’s top ten customers have contributed around 29% to 36% of revenue since 2009, whereas TNAV is relying heavily on Sprint, AT&T and Ford.
Cash flow generation
During the past four years, TNAV is the constant positive cash flow generator.
The large difference in cash flow from operations in 2010, 2011 and 2012 is the swing in cash flow of deferred revenue. Four-year average operating cash flow and free cash flow are $51 million and $41.2 million respectively.
TNAV has no debt and lots of cash in its balance sheet. The total liabilities accounts for only more than 18% of total asset, whereas cash accounts for more than 75%. Currently, it has $199 million in cash. At $6.14 per share, the market capitalization of TNAV is $254.3 million and the enterprise value is around $51.1 million.
Directors and management team of TNAV owns good chunk of company’s shares. In addition to several tech venture funds, Dr. HP Jin, president, chairman and CEO of the company, owns more than 1.74 million shares. And Jason Chiu, the independent director, owns 1.56 million shares. Collectively, two of them hold 3.3 million shares, representing nearly 8% of the company.
As noted above, four-year average operating cash flow and free cash flow are $51 million and $41.2 million respectively. So with the enterprise value of $51.1 million, TNAV is trading at 1x EV/CFO and 1.24x EV/FCF. The company is valued at 8.3x P/E and 1.2x P/B in the market, much lower than the industry average of 22.1 P/E and 2.6x P/B, a pretty cheap valuation.
Even with buyer concentration risks, TNAV seems to be a good bet for investors. It is quite cheap in any metrics. Investors might consider TNAV as a small cap company with same good quantitative operating and return metrics but trading at much lower valuation than Garmin’s and the industry average.
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