I always believe that it is much easier to trade a great idea 10 times then it is to find 10 different great trade ideas. This is why in my column I wrote about the merits of Structural Monitoring Systems during its run from 60c to $2.99 on several occasions and why I am highlighting MGM Wireless (MWR) and their SPACETALK all-in-one kid’s smartwatch again. I think readers would appreciate me emphasizing my highest conviction trades and ideas rather than introducing an idea just to fill this column.
I first wrote about MGM Wireless (MWR) on the 4th May 2018, introducing it as my favourite investment idea given it had several key characteristics that made it particularly attractive; extremely low market cap, solid management and best of breed product in one the world’s fastest growing technology categories. I shared the idea here first with Share Café readers before I released my full in-depth institutional research report on the 15th May 2018 explaining the kid’s smartwatch industry, exactly where MWR’s SPACETALK sits within the Australian market and the global opportunity that it presents. I also make a comparison to the current market valuation of Nuheara (NUH) – which sell wireless earbuds – and how the market may interpret the successful rollout of their SPACETALK kid’s smartwatch. On this basis I have a target for MWR of $4.33/share. For those interested it can be downloaded here.
The share price has enjoyed a strong appreciation in the past month rallying over 100%, however, this has not been without merit as the Company has continued to make excellent progress in just five short weeks.
Following a share purchase plan that was 3.5 times oversubscribed, MWR appointed Jason Le as Director of Digital Marketing and Product Development who previously held the role of Regional Marketing Manager with Go Pro responsible for Australia, NZ and South-East Asia. With former positions at Walt Disney and Oakley, this is a great addition to the MWR team giving it the experience needed in launching a hardware device into the Australian and international markets. This adds to the existing team of Paul Cooper (previously held senior position with Nokia as Global Supply Management) and Amanda Lee (formerly of JB Hi Fi, Vita Group, Microsoft) as Sales Manager. As a result MWR now has a team experienced in product development, product line management, marketing, distribution and sales.
This week the rollout into bricks and mortar sales began with entry into a dozen stores with the majority part of the Leading Edge Group – an association of 950 independent businesses. The stores are located in the regional areas across the country with sales already off and running.
More importantly MWR noted in that announcement that they expect to sign further significant bricks and mortar retailers in the coming weeks while discussions with telecoms in Australia and overseas continue, so it is reasonable to assume we will see a series of announcements that will substantially increase the sales footprint of the world’s leading kids smartwatch.
One thing I always place great emphasis on is price action. The combination of share price momentum and news flow is very powerful and often leads to substantial trends and re-ratings. MWR is currently enjoying strong share price momentum and the news flow is just beginning which infers when looking at the monthly chart below, that MWR is only just breaking out.
I highlighted this chart before in my original column and stated that when the $1.80/$2.00 resistance zone is breached it could really trigger a “take-off” in similar fashion to that of 2007.We now have that breakout combined with news flow, with very little resistance now in place until my target of $4.33. The 2007 rally came as the company expanded its schools-to-parent SMS communication platform into the USA. After showing great progress, unfortunately the GFC hit and US school’s had their funding slashed and the Company’s great progress hit a wall.
The 2007 rally started from similar price levels as the rally has in 2018 and it really only accelerated into an explosive move once the $2.00 level was broken. From there it was just months until it hit $6.00!
In 2018 not only is the opportunity now notably larger but MWR is much better positioned for sustainable growth with the leading device in the booming technology wearables market. Gartner Research states “smartwatches are on pace to achieve the greatest revenue potential among all wearables through to 2021” – the equivalent of US$17.4 billion. The kid’s category is 30% of this market.
Another key factor to point out from the chart below that I place a lot of focus on is the MACD indicator (bottom indicator), which has only just broken above the zero line. This in itself is a BUY signal while also highlighting there is still has plenty of room for the MACD to increase before reaching the overbought heights seen in 2007. Moreover, the RSI indicator too has more room to move before hitting resistance. These two indicators underpin why there is a lack of resistance on the physical price chart and further news flow is likely to see momentum accelerate from here.
When looking at the shorter-term price action off the daily timeframes we can see how consistent the current uptrend is. The share price tends to spend short periods of time trading within horizontal consolidations that I like to call “Accumulation Zones”. Once these zones are breached MWR enjoys a strong rapid move higher to establish the next accumulation zone or consolidation. The first arrow shows where my last column highlighted a potential breakout and given the expected news flow coming from the Company of more retailers signing additional significant retailers, I would expect not only a break higher from the current accumulation zone between $1.95/$2.30 but also that this accumulation zone would also be shorter in duration as well. That is how stocks go “parabolic” and during that move is where significant trading profits can be made.
Recall this company is only a $25 million market cap company so to move to a $50 million market cap is not difficult when companies like Nuheara trade at $91 million selling approximately 13,000 earbuds in the last financial year AND losing money. MWR has a track record of 17 years of making profits from their schools communication business that generates over $2 million per annum in revenues.
As with Structural Monitoring Systems that I highlighted several times in my column over 2015 -2016 as it gained 500%, MWR will be an ongoing positive story for me as they capture a growing share of the new lucrative kids smartwatch category with – from personal experience as well as customer reviews – the highest quality and most reliable smartwatch available globally.