ID Systems: A Micro Cap Company with Mega Cap Clients

In the micro cap investing world, it’s rare that you get the opportunity to invest in a company that counts some of the world’s largest corporations as its clients.

However, that’s exactly what you get with ID Systems (IDSY).

ID Systems makes and distributes fleet management and tracking systems that are used by companies like Avis, Wal Mart, Home Depot, and Proctor and Gamble. The company was founded in 1993. It went public in 1999 and has seen rapid revenue and profit growth in recent years.

ID Systems makes a number of products, which fall into three different categories. One is Industrial Vehicle Management Systems (VMS), which allows large industrial complexes to track the locations of their vehicles, including everything from forklifts to tractor trailers. Another category is Transportation Asset Management (TAM), which allows trucking companies to quickly locate vehicles to better schedule pickups and dropoffs. Finally, ID Systems also produces Rental Fleet Management (RFM) technology to allow car rental companies to manage and locate their vehicles.

On May 7, the company reported earnings results for the first quarter of 2014. It saw revenue jump 21 percent from the first quarter of 2013. That includes a 42 percent in VMS sales over the same period in 2013. Also, 44 percent of that revenue is recurring and set up on annual plans.

The company is also in a strong capital position. It reported having more than $13 million in cash and cash equivalents and also having no debt on its books. ID Systems enjoys high margins, with a 51 percent gross margin in the first quarter.

ID System’s growth strategy is two-fold. First, the company will continue to find and nurture new client leads. There’s plenty of opportunity. Despite the company’s success, they have only 10 percent of the rental market and only 20 percent of the transport market.

ID Systems is also implementing an enterprise growth strategy, in which they want to achieve growth by obtaining their clients’ entire portfolio of transportation tracking needs. Again, there is substantial opportunity to do just this. For example, the company works with some of Wal Mart’s distribution centers, but not with its fleet of 12,000 grocery trucks. It provides tracking technology to some of Home Depot’s distribution centers, but not its planned rollout of 15,000 new trucks.

As of May 23, ID Systems’s stock was priced at $4.17 per share, significantly lower than its 52-week high of $6.84 per share. The company could represent a nice value play in a booming blue-chip market.