Value Line has initiated coverage of Avigilon Corporation (AVO.TO) in its flagship product, The Value Line Investment Survey. Founded in 2004, the company designs and manufactures high-definition surveillance solutions. It went public on October 28, 2011. Today, it holds a leading position in HD network video management software and megapixel cameras.

Avigilon’s products and systems are sold through a certified network of resellers, known as “Integrators” to the group, with no sales occurring directly to customers. No sales are executed online, either. These Integrators help design surveillance systems and tailor solutions specifically to the end-user’s needs.

The company has a global distribution network. To date, Avigilon has implemented its products in over 20,000 customer sites in 80 countries. End users include school campuses, transportation systems, healthcare centers, public venues, prisons, casinos, factories, banks, government facilities, and retailers.

In 2013, just over half of Avigilon’s sales came from the United States. EMEA was the second largest contributor of revenues, at 24%. The remainder of sales are spread out between Canada, the U.K., Asia/Pacific, and Latin America.

Its share price has risen quickly since 2012, thanks to Avigilon’s impressive top- and bottom-line growth. Revenues grew 78% in 2013, to $178 million, with every geographic region participating handily in the top-line increase. Meanwhile, earnings advanced at an even faster pace.

There appears to be plenty of room for continued growth. The security surveillance market is already large, yet is still growing rapidly owing to an intensifying focus on public safety, asset protection, theft prevention, liability management, and regulatory compliance. The security market is highly fragmented, and no single company has a dominant grasp on market share. Furthermore, the IP (digital) camera compound annual growth rate is expected to be about 24% through 2016.

The company’s margins are very good. In 2013, its net profit margin was 12.1%, storming ahead of the 7.2% mark earned the previous year. The cost of sales trend has been favorable, attributable to sales mix shifting toward more profitable products, lower costs from the impact of greater economies of scale on purchasing, and improved manufacturing efficiencies. Going forward, cost of sales as a percentage of revenue should continue to decline with the introduction of new products, cost reductions from increased buying power, and fixed costs rising slower than associated revenues. Its sales and marketing expenses have swelled a lot too, but these efforts certainly appear to be bearing fruit at an impressive rate.

To support its expansion, the company has been adding members to its sales teams in both existing and new regions. Total employees mushroomed from 255 individuals at the close of 2012, to 455 a year later. Unsurprisingly, the most prominent growth is coming from the areas where Avigilon has added the most to its sales teams. Due to increasing demand from beyond of North America, we think Avigilon may decide to expand its manufacturing capacity into other world regions.

In 2013, Avigilon closed one acquisition, RedCloud, a provider of web-based, physical, and virtual control systems, with the objective to increase its footprint in the global security market. This year, it completed its acquisition of VideoIQ, a leading video analytics company. VideoIQ’s propriety technology includes live detection, event verification, and instant notification & self-learning capabilities. Also gained through the transaction were 40 patents granted or impending internationally.

Because of these acquisitions, AVO has positioned itself to be able to combine video surveillance and access control from one system while utilizing video analytics for alert conditions. This will be the first and only system that can perform all three functions collectively. We think that recent and future acquisitions will position Avigilon to compete in other, more broad security segments.

Although the stock has been a stellar performer since the company went public, the shares have pulled back in price, recently. There has been some turnover in executive positions at the company of late, which some investors may have taken it as a potential warning sign of underlying troubles.

Avigilon has a strong balance sheet. It has no debt and a desirable current ratio of 7.1. It also has sufficient cash and liquidity to pursue acquisition candidates. Lately, there has been a significant inventory build-up. We think this is signifies the company’s confidence that demand and revenues will accelerate in the coming quarters.

AVO.TO stock is best suited for growth investors. Indeed, its exceptional growth have likely caught the attention of many individual and institutional accounts. The company does not pay a dividend, and is unlikely to initiate one in the near future.

Interested subscribers should take a look at the company’s full-page report in The Value Line Investment Survey, as well as various supplementary reports that coincide with newsworthy events when making an investment decision.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.