Top 5 Pick Guestlogix: Good news flow plus growing Q3 earnings

Guestlogix has presented some good news flow recently. During the past 30 days, the company has made seven corporate announcements including a settling of an IP dispute with Abanco (at 0 cost), an airline deal with Horizon Air, an ad serving deal with JETERA, merchandising deals with Forum Telecom (mobile subscriptions), Facilities Partner Ltd (train tickets), and Vegas.com (Vegas shows). In addition, it announced a product enhancement for NFC contactless payment options.

The deal making is starting to show up in performance. Today it reported solid progress in earnings growth and scale. The company reported record EBITDA of $1.3 million for the quarter, a 23% sequential improvement over Q2 2009 results of $1.05 million. The press release points out that the EBITDA margin for the quarter was 27%, which should be considered by investors as very positive leverage if the margin can be sustained over time while sales continue to ramp.

The company continues to scale well despite the impact of the recession on its client base. Revenue for the quarter increased by 100% to $4.8 million over the previous year Q3 and total sales for F9M of 2009 are reported at $13.4 million, 139% ahead of F9M for 2008. The company reported Net Income for the second quarter in a row, and investors should expect positive net income to be reported for the foreseeable future.

The stock has been on a run for the past few weeks at is at its highest level since the beginning of 2008. Since the lows of March, the stock price has increase 333%, and 116% since the beginning of the year.

With a spate of new deals announced during 2009, GXI has a robust growth profile with little meaningful competition in its niche market. If it can maintain EBITDA margins at around 27% while maintaining growth, then there is a lot of room for the stock to continue to appreciate in value now that liquidity has also increased. Analysts with current targets in the $1.50 range are likely to increase forecasts and targets.

Disclosure: I do not own shares of GXI.

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