Purchase for small-cap growth.

FleetMatics Group PLC (NYSE: FLTX) is an industry leader in fleet management software-as-a-service (SaaS) solutions to small- and mid-size fleet operators. The company’s REVEAL, REVEAL+ and WORK solutions help fleet managers monitor vehicle geo-location and speed, driving habits, fuel efficiency, route choices and deviations, mileage and other key variables to help improve workforce and fleet efficiency, and lower operating costs. Fleetmatics recently launched REVEAL Field, a new enhancement to its established REVEAL platform that better connects dispatchers, managers and drivers through an innovative mobile application and is expected to sizably boost usage, data recency and operational efficiency. The company has operations in the United States, Canada, Mexico, Ireland, the United Kingdom, Netherlands, France and Australia. Fleetmatics recently surpassed a major milestone with 625,000 active vehicles under subscription across about 29,000 fleet management customers.

Year-to-date, Fleetmatics’ shares are up about 41% to $49.97 per share as of market close on 9/25/2015, giving the company a market capitalization of $1.92 billion. Shares are trading near the high-end of the company’s 52-week price range of $27.75 – $52.45. At $49.97 per share, Fleetmatics shares carry a price-to-earnings ratio of 51.5x on earnings of $0.97 per share. Barclays PLC (BCS) has an Overweight rating and $55 price target on Fleetmatics while Imperial Capital initiated coverage with an in-line rating and $52 price target, representing upside potential of 10% and 4%, respectively. The company has a high price target of $60, 20% higher than its most recent closing price of $49.97.

The company does not pay dividends.

Fleetmatics reported second quarter financial results for the three months ended June 30, 2015, with subscription revenue of $68.6 million, up a solid 24% from the same period in 2014. Chairman and CEO Jim Travers noted that the company added 31,000 new vehicle subscriptions in the quarter, up 125,000 over the last year. Management is focused on continued global expansion to drive revenue growth. For 2Q15, Fleetmatics reported net income of $5.4 million, or $0.14 per share, and earnings of $0.33 per share.

Management raised guidance for 3Q15 and FY2015. For the third quarter the company expects total revenue in the range of $72.5 – $73.5 million and non-GAAP adjusted earnings of $0.33 – $0.34 per share. For full year 2015, the company estimates total revenue of $282 – $284 million and non-GAAP adjusted earnings of $1.35 – $1.40 per share. Fleetmatics reported 31% revenue growth in fiscal 2014. Analysts at Macquarie Research expect revenue to grow by 22% in 2015 and another 22% in 2016.

DIRECTV (DTV)

Cable provider DIRECTV (DTV) recently announced that it had chosen Fleetmatics’ mobile workforce solutions to monitor its fleet of 6,200 vehicles. DIRECTV will use REVEAL+ to track and monitor vehicles making service calls, and expect that the solution will boost field service worker productivity and fuel efficiency while reducing field operating expenses.

Europe Expansion

Fleetmatics also signed a 5-year deal to provide workforce solutions to leading security company Brink’s (BCO) for its 1,000 vehicles in France. The deal is Fleetmatics first enterprise deal in Europe.

John Molamphy was named VP – Engineering of Fleetmatics and will oversee the research and development of new industry-leading solutions by the company’s engineering team. Molamphy will report to CTO Peter Mitchell and will be based out of Dublin, Ireland. Molamphy has previous experience in technical leadership roles with Dell and Office Depot Inc. (ODP).

Fleetmatics was named Public Company of the Year by the Mass Technology Leadership Council for its contribution of innovative workforce management solutions for fleet operators. The company also received an award for Company of the Year (in the over 500 employees’ category) and took home second place for Business-to-Business Services at the 2015 Stevie American Business Awards.

Despite the strong dollar and foreign exchange volatility, Fleetmatics was able to beat analysts’ estimates on revenue and earnings per share in its most recent quarter. Fleetmatics strategy of providing cost-effective yet innovative fleet workforce solutions continues to gain traction, drive revenue growth and customer subscriptions, and boost profits. The company generates 90% of its revenue from within the United States which is a plus because U.S. GDP continues to grow at a healthy pace, with strong job creation, low cost of credit, low fuel costs and strong consumer confidence which should boost end-user demand and fleet growth, and help drive up revenues for the foreseeable future while offsetting weakness in Europe and the company’s other international markets. Further, high U.S. revenue share also reduces earnings volatility tied to currency fluctuations and the strengthening dollar.

Fleetmatics’ management is also strategically focused on revenue and market share growth with fiscal discipline, and aims to get 1.2 million vehicles under subscription by 2020. The company currently only has about 12% market penetration in the fleet services industry which is estimated to be worth over $45 billion worldwide, and is expected to grow with a compounded annual growth rate (CAGR) of 15% through 2019. In addition, Fleetmatics has significant upside from expansion in Europe, Latin America and other global markets. The company estimates that there’s been only 10% penetration in its key global regions, with about 45 million fleet vehicles in Europe and Latin America alone, and believes the economic ROI of fleet management solutions will drive up adoption.

The company also benefits from significant barriers to entry that protect it from new entrants while innovation from research and development help maintain its dominance in the industry. Moreover, the features and functionality of its SaaS service platform have been developed over many years with significant feedback from operators, and are not easy for new entrants to replicate.

In addition, its subscription based SaaS model lowers startup costs for customers and lets them scale usage up at their own convenience without any heavy initial outlay of funds for software licenses and onsite servers, etc., and encourages easy, low risk adoption. In parallel, its SaaS platform allows sizable scalability without additional equipment, and helps the company expand profit margins as it adds incremental licenses.

So, overall, Fleetmatics is well positioned to deliver incremental revenue and margin growth and any dip in shares should be viewed as a buying opportunity.

Summary

I like the company’s size. A $2 billion market cap is in the small cap size. The company is growing in the 20% +, per annum, range. I believe this name continues higher as new clients are added

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