Why Is The EROAD (ASX: ERD) Share Price So Low?

There is plenty to explore about New Zealand truck tracking company Eroad (ASX: ERD), but it’s well worth asking why the Eroad share price is only about $3.80 at the end of October.

I will leave a deep dive into the business for another day, because the more pressing urge, for me, is to ponder why this Eroad stock price is so low compared to other, similar companies. For that, we need a little background.

Eroad (ASX: ERD) Stock At A Glance

  • Eroad allows customers to track the movements and driving skill of trucks and other vehicles. This is a requirement in some jurisdictions that charge road usage fees.
  • Eroad Annualised Monthly Recurring Revenue (AMRR) of $84m FY20
  • 94% of Eroad’s revenue is recurring
  • Eroad has an EBITDA margin of 33% (trending up)
  • Eroad has a multi-year cash run way given cash burn running at less than $15m per year and strong cash balance.
  • Long-serving aligned Eroad CEO in Steven Newman
  • Eroad recently had a share purchase plan and capital raising at $3.59 AUD (NZD equivalent at the time) to raise around $50m. The SPP saw subscriptions of around NZD $18.5m, and only $11m was allocated.
  • Eroad has a market capitalistion of around $312m at the current price of $3.80
  • Eroad trades on FY 2021 ~ 4x recurring revenue based on 95% of revenue being recurring and recently reiterated guidance.

Suffice it to say, one could argue that the current Eroad share is superficially cheap relatively cheap for an ASX stock with high recurring revenue. For example:

  • Damstra (ASX: DTC) guided for FY 2021 recurring revenue of about $30.6m, and has a market cap of $373m, putting it on about 12x recurring revenue.
  • Whispir (ASX: WSP) on track for ~$49m FY 2021 recurring revenue and has a market cap of $423m trading on 8.6 times recurring revenue.

I could go on, but you get the point. On the numbers this is cheap. Why?

Reasons Eroad (ASX: ERD) Share Price Might Be Cheap

  • Eroad has recurring revenue, but it is partly to do with hardware. This is less sexy than software and also means margins are lower.
  • Eroad has been NZ listed for some time and only recently listed on the ASX, meaning it is not on people’s radars.
  • Eroad recently raised capital, meaning institutions that wanted to buy shares have already bought shares.
  • Eroad lacks coverage: 2 articles only in AFR, zero articles by retail outlet, Motley Fool, zero articles by insto outlet Livewire, and most coverage is automated bot generated content (I know this, because I designed the logic in the bot, lol).
  • CEO doesn’t seem to like the spotlight.

Reasons This Might Change

  • Eroad still has good margins despite hardware costs. For example PME has an EBITDA margin of 67%, about double the margin, but trades on over 40x FY 2021 recurring revenue. Damstra has an EBITDA margin of about 25%.
  • Eroad has only been listed on the ASX for a month or so. People take time to notice these things.
  • There are no prizes for being original as investors. Motley Fool will start writing about it if/when one of the services recommend it. I have no idea how long it will take one of the Advisors get there but I’m betting they will eventually. Livewire gets content from funds so they will come on board when they are good and ready. More coverage (if and when it comes) should support the share price.
  • CEO doesn’t seem to pump the stock whatsoever and I doubt he’ll change his stripes, but once people seek out the story more aggressively this shouldn’t matter.

Et voilĂ . Hence why I have been buying more shares this week.

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