4 Telematics Stocks Cheaper Than Samsara Stock
Table of contents
Question: If a short-seller releases a scathing report alleging questionable accounting practices by one of the hottest software-as-a–service (SaaS) companies around and no one (except apparently us) writes about it, did it even happen? Back in September 2023, we analyzed a short report on Samsara (IOT) by Spruce Point Capital. The report claimed, among other things, that hardware sales make up a significant share of revenues, and also calls into question some of the metrics and customer diversification that Samsara boasts about as a SaaS company.
We always approach these short-seller reports with a healthy dose of skepticism. After all, the intention is to spook investors and knock down the share price, so firms like Spruce Point Capital can profit. Altruism as a motivating force is a distant second. And, indeed, Samsara stock dropped about 25% in the days following the report. And then … crickets. As far as we know, Samsara never addressed any of the allegations. Analysts completely ignored the Spruce Point dossier during the company’s Q3-2023 earnings presentation, during which it reported both quarterly and annual recurring revenue (ARR) growth of about 40%. Customers with ARR of more than $100,000 grew nearly 50%.
That shot Samsara stock back past its pre-September high, with shares up more than +170% for the year, compared to about +43% for the Nasdaq as 2023 comes to a close. The company remains richly valued, with a simple valuation ratio ($18.25 billion market cap/$950 million annualized revenue) of nearly 20, which is the upper limit of our risk tolerance. While we intend to dive more deeply into Samsara stock later in 2024, we have no intention of taking any further action at this time. Instead, in this article, we want to look more closely at four small-cap telematics stocks to see if any of them offer Samsara-esque growth potential without the associated price tag.
Telematics Companies Chase Massive TAM
First, let’s briefly revisit what companies like Samsara do. The ticker symbol is a pretty big clue: Samsara and its ilk use hardware and software to connect things like trucks and machinery to a cloud-based platform where algorithms crunch billions of data points for different types of analytics. Transportation is a leading market for this type of IoT industrial tech. For example, video cameras may monitor driver behavior and road conditions to improve safety or other sensors might track vehicle performance and fuel consumption to boost efficiency. Manufacturers can use the same platform for predictive maintenance of machinery or to reduce a facility’s energy consumption. Retailers might employ an IoT solution to ensure items requiring refrigeration are properly stored as they move through the supply chain.
These and other use cases fall broadly into telematics, which merges telecommunications with informatics about the physical world – so-called digital twins. Samsara itself says the total addressable market for digitizing assets in industries from transportation and manufacturing to logistics and insurance is close to $100 billion. Based on an ARR of about $1 billion, the SaaS firm has penetrated just 1% of its target market. That means there is potentially plenty of market share for these four companies:
| Telematics Companies | Ticker | Market Cap | 2023 Annualized Revenue | Simple Valuation Ratio |
| Ituran Global | ITRN | $540M | $324M | 1.7 |
| MiX Telematics | MIXT | $172M | $152M | 1.1 |
| Powerfleet | PWFL | $104M | $136M | 0.8 |
| Quartix Technologies | QTX.L | $90M | $35M | 2.6 |
We immediately see that the telematics companies on our list have a combined market cap of less than $1 billion. Companies with market caps of less than $1 billion tend to be too volatile for our tastes. Still, we’re curious to check out these Samsara competitors and see how they compare.
About Ituran Stock
Let’s start with the biggest (by market cap) and one of the oldest (incorporated 30 years ago). Ituran Location and Control is an Israeli firm with annualized revenues of $324 million. Its business revolves around location-based and connected-car services, such as stolen vehicle recovery, fleet management, and merchandise security, among other solutions. During its most recent quarter, Ituran generated 74% of revenues from location-based service subscription fees, with the remainder coming from product sales.
The company claims more than 2.2 million subscribers, with Israel and Brazil accounting for most of its subscription revenues. Unlike Samsara customers, who are locked into multi-year contracts, subscribers to Ituran’s various solutions can cancel their monthly subscriptions at any time. The company says its historical average churn rate of 3% means that it can anticipate at least 90% of its subscription fees generated in a prior quarter will recur in the following quarter, even if it does not add any new subscribers. Selling the service does not appear to be a problem: Ituran signed up 48,000 new customers in Q3-2023. It is also profitable with positive cash flows and little debt.
Still, the company is not posting Samsara-like growth. Based on annualized revenues, Ituran may post 10% year-over-year revenue in 2023, though an anticipated drop in new subscriptions due to the Israeli-Gaza conflict may keep that number in the single digits. Ituran also pays out a dividend, which cuts into the money available to grow the business more aggressively. The company’s low-frills website seems to reflect its slow-and-steady approach to business.
About the Powerfleet and MiX Telematics Stock Merger
Not so with our next contender(s). You might have noticed that our list covers four companies, but two of them are planning to merge by Q1-2024 to accelerate their growth as a leading SaaS stock. In October, Powerfleet and MiX Telematics agreed to combine their IoT- and AI-powered telematics businesses into one entity, representing total revenues of $279 million, including $210 million in ARR. At least that’s the feel-good story in the press release. The new company will keep the Powerfleet brand name and ticker. The merger is an obvious attempt to build a SaaS contender to Samsara, with a roadmap to reach the golden Rule of 40.
A financial metric specific to SaaS businesses, Rule of 40 basically states that a healthy SaaS company should have a combined and sustained growth rate and profit margin of at least 40%. For instance, Samsara has achieved that threshold for four straight quarters. Powerfleet and MiX Telematics claim that their newly combined company, with a base of 1.7 million subscribers and 7,500 enterprise customers, can join this elite club by 2025 but at a far better value for investors.
So, who are these companies?
- Nominally headquartered in New Jersey, Powerfleet makes liberal use of the latest buzzwords around IoT and artificial intelligence throughout its website and marketing material. The company only just released its flagship platform, Unity, in 2022. It does seem to offer connected solutions outside of transportation, such as IoT-enabled defibrillators in key markets like Israel (where its engineering center is located).
- Founded in 1996, MiX Telematics is another IoT company nominally based in the U.S. but originally out of South Africa. MiX Telematics is clearly focused on fleet management, offering products like AI-powered dashboard cameras and GPS tracking hardware for vehicles.
Neither company has been setting records in terms of revenue growth. For example, subscription revenue for MiX Telematics increased just 5.5% in its most recent quarter. Powerfleet services revenue through the first nine months of the year is up just 6.3%. In addition, hardware accounts for 37% of Powerfleet revenues though only about 13% for MiX Telematics, so transportation will likely be an outsized source of revenue in the near term. Companies involved in these sorts of mergers usually play up the synergies while ignoring the sticking points. The forecast for achieving Rule of 40 status in the next couple of years seems more SPAC-like than Samsara-like at this juncture, but we’re going to add this to our watch list with a revisit well after the merger dust settles.
About Quartix Technologies Stock
The runt of the litter, UK-based Quartix Technologies appears to be strictly focused on solutions regarding vehicle telematics, fleet management, and driver behavior analytics. Mainly operating in Europe and the United States, Quartix annualized ARR is about $35 million. On the plus side, about 94% of revenues is recurring and the company is debt free and modestly profitable.
On the other hand, there’s not much reason to dig deeper. Quartix is far from being a high-growth business, and likely never will be given that it pays a dividend out of those modest profits. Seems like a nice little business but not one that we would consider for our Nanalyze Disruptive Tech Portfolio.
Conclusion
Ditto for Ituran, which seems like a larger and more diversified version of Quartix. That just leaves Powerfleet-MiX Telematics, which seems pretty spiffy based on the shiny investor deck that promises the newly combined business will be a SaaS powerhouse competitive against Samsara but at a bargain price. At this point, we’re not buying the story or the stock. A lot of dust needs to settle before we take a deeper dive into the company’s fundamentals. Based on what’s available today to retail investors, Samsara stock appears to be the gold standard in telematics stocks at a platinum price.
Share
