We have initiated coverage of Sierra Wireless (SWIR) in our flagship product, The Value Line Investment Survey. The company describes itself as “the global leader in machine-to-machine (M2M) devices and cloud services”. Sierra Wireless provides wireless modems, routers, and gateways that connect people, devices, and applications over cellular networks. It has shipped more than 50 million M2M devices worldwide, and the company’s devices are operating on more than 80 networks. The company is based in Richmond, British Columbia (near Vancouver) and has about 850 employees.

Sierra Wireless was founded in 1993. It had its initial public offering in May of 2000. Its stock is traded on NASDAQ under the symbol SWIR and on the Toronto Stock Exchange under the symbol SW.TO.

Data provided by ABI Research illustrate the growth potential for Sierra Wireless. In 2012, the company had a 34% (leading) share of the worldwide M2M market. The embedded modules market was $1.0 billion that year, and ABI projects that it will reach $1.8 billion in 2016.

Sierra Wireless serves numerous markets. These include automotive, energy, field service (police and fire departments), healthcare, industrial and infrastructure, consumer, networking, sales and payment, security, and transportation. Typical applications include vehicle navigation, electronic toll collecting, stolen vehicle tracking, renewable energy charging stations, digital signage, video surveillance, and point-of-sale systems. Among the companies that are working with Sierra Wireless are Cisco Systems (CSCO - Free Cisco Stock Report), General Electric (GE - Free GE Stock Report), AT&T (T - Free AT&T Stock Report), Honeywell (HON), and Sprint (S). Sierra Wireless does business in more than 130 countries and has partnerships with network operators worldwide. In 2013, 48% of its revenues were generated in the Asia-Pacific region, 31% in the Americas, and 21% in Europe, the Middle East and Africa.

Sierra Wireless is growing rapidly. March-quarter revenues of $121.2 million were nearly 20% above the year-earlier figure. (Data are in U.S. dollars.) The top line also advanced 2% sequentially. The gross profit margin declined from 32.9% to 31.9% in the quarter due to a shift in product mix. But Sierra Wireless isn’t just counting on organic growth. In March, it completed the acquisition of In Motion Technology, which provides mobile products such as in-vehicle routers and mobile-optimized security systems, for $21 million in cash.

Despite the rising demand for the company’s products and services, Sierra Wireless is in the red. It lost $4 million ($0.13 a share) in the first period, as the company is incurring high research and development costs. Cash flow from operations was negative, too. The market did not take kindly to Sierra Wireless’ first-quarter showing, as the stock declined more than 10% after results were released. Even after this dip, however, the quotation is up more than 50% in the past 12 months.

The balance sheet is in good shape. As of March 31, 2014, Sierra Wireless had $151.3 million in cash and no debt, other than a small amount of capitalized leases. The company pays no dividend, and is not likely to do so anytime soon.

Sierra Wireless faces numerous challenges. Changing technology is one. There is no assurance that a competitor won’t come up with a better product or service. Litigation, such as patent-infringement suits, occurs from time to time. The company is also affected by the state of the worldwide economy, and has exposure to currency fluctuations. All told, Sierra Wireless stock is best left for risk-tolerant investors.

For a more thorough look at Sierra Wireless, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.