Stock pick: Smart Technologies Inc. (SMA) could be a smart pick

With 90% of revenue in education, enterprise is a growth area

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Chart showing trailing 12-month stock performance of Smart Technologies inc.

Most people wouldn’t think of smart board technology as an up-and-coming tech trend, but those folks would be wrong. While smart boards have mostly been used in classrooms around the world, if SMART Technologies (TSX: SMA) has its way, these boards — which are like a white board, projector and computer rolled into one — will become a staple in corporate offices and other non-educational sectors.

Calgary’s SMART Technologies is the main player in the interactive white board space — it holds about 60% of the sector’s market share. For most of its existence, it’s been focused on the educational sector, which hasn’t been as lucrative as first thought. Schools are constantly under pressure to cut back and most are overseen by governments and that has hurt the company.

To overcome that pressure, it’s been focusing more and more on the enterprise market. A lot of their tools would work well in the corporate world and they now have products geared toward that segment.

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If you look at the company’s stock chart, you’ll see that its shares took a massive dive after it listed on the Toronto Stock Exchange in 2010. Ralph Lindenblatt, a portfolio manager with Franklin Templeton Investments, points out that valuations were too high back then and people’s expectations were unrealistic.

It mostly went nowhere after that, but take a look at its 12-month return and you’ll see things are starting to move in the right direction. The stock is up 77% over the last year and it’s up 20% since January. Lindenblatt sees enormous potential in the enterprise space. At the moment about 90% of its business is in the education sector, which means it has a lot of room to grow elsewhere.

In the short-term, it’s likely the education segment will continue to put pressure on the company, but enterprise will offset some of the declines. Robert Stone, an analyst with Cowen and Company, thinks that board sales will decline by 5% in 2015 because of a weak U.S. education-related spending. However, the average selling price will rise by 4% thank to more corporate spending on smart boards.

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If America continues to improve and spending remains stable, then SMART Technologies could see some solid gains. In Stone’s “upside scenario” board sales could increase by 5%, while the average sale price could climb between 5% and 10%.

Either way, the stock price should continue to climb. It’s currently trading $2.68 a share, but Stone thinks it could hit $3.75 over the next 12 months. The median price target is $4 a share, while the most bullish target is $5.60.

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