It has been a while since I've written on Franco-Dutch digital security company Gemalto (OTCPK:GTOMY) (GTO.PA) (GTO.AS). I thought the shares looked interesting back in February of 2013 on the potential to benefit from growing 3G/4G adoption and the conversion to EMV chip cards, and the shares did alright in the following two years (albeit with volatility). Starting around mid-2015, though, circumstances changed dramatically for the worse in the company's mobile SIM card business, and recent pressures from the payment/EMV business have made things worse.
I believe the
company, and the shares, are in a tough transition period. I don't think
mobile SIM cards will ever be a driver for the business, and I'm not
sold on the prospects for mobile payments and contactless EMV cards to
drive meaningful long-term value. I do believe, though, that the
company's position in security platform/services, enterprise security,
government, and machine-to-machine can drive worthwhile growth in the
years to come.
The shares do look undervalued today on the basis
of revenue growth in the neighborhood of 4-5% and FCF growth around
7-9%. That said, for those who can stomach the risk of missing out,
waiting a little longer to make sure there isn't another shoe to drop
may be a better decision in terms of long-term risk/reward. In terms of
the mechanics of buying the shares, the U.S. ADRs do trade, but there is
better liquidity in the European markets and most brokers now handle
these trades at reasonable prices.
Read more here:
Gemalto In A Bruising Transition Period