Windward (LSE: WNWD) is an interesting growth company. It has a market cap of £85m and a share price of 96p, making it a penny stock. However, it has fast-growing revenues and is on the cusp of profitability.
Moreover, it’s harnessing the revolutionary power of artificial intelligence (AI) technology in its products. Here’s why I’m invested and remain bullish.
Wind-what?
Windward is a software firm that uses AI to track ships and analyse data. Its platform is powered by machine learning models that utilise billions of data points to help companies and organisations understand risks, optimise routes, and ensure efficient transportation of goods by sea.
While the stock is up 75% over the past year, it’s still down 52% since listing in late 2021.
What I like here is that the firm’s marine tracking technology is in high demand (and likely to remain so) due to the increasing number of sanctions placed on regimes and vessels. Also, there’s ongoing chaos in the Red Sea where pirates — remember them? — have been making a comeback.
Here are some firms and organisations that need to track ocean freight, especially with rising risks on the high seas:
- Shipping companies track fleets and optimise routes for safety and efficiency
- Cargo owners and freight forwarders track shipments in real time to ensure timely delivery
- Insurers can use Windward’s data to assess maritime risk and set appropriate insurance premiums
- Government agencies monitor suspicious activity and ensure regulatory compliance
Big-name customers
The company has a growing blue-chip customer base that includes BP, Shell, and HSBC. Its non-executive chairman is Lord John Browne, former CEO of BP.
It also has a contract with the US Department of Homeland Security. And in February, the firm was chosen by INTERPOL, the world’s largest international police organisation.
Blue-chip names like this give credibility to the firm’s platform. Just as importantly, it offers the opportunity to sell additional modules and services to these well-financed customers over time.
Charting a course to profitability
The company’s software-as-a-service (SaaS) model, involving annual subscription for customers, means that nearly all its revenue is recurring.
By the end of 2023, its annual contract value had increased 35% year on year to $34.5m. Revenue rose 31% to $28.3m while gross margin expanded from 72% to 79%.
The main risk is that the business is still loss-making. Last year’s EBITDA loss was $5m, down from $12.1m in 2022. However, it’s worth highlighting that the loss narrowed to just $1.2m in H2 of last year.
This suggests that the firm is well on course to reach EBITDA break-even this year, with profits likely to follow given its high gross margins and low capital requirements.
It ended 2023 with net cash of $17.3m.
Higher price ahoy?
The City currently sees revenue rising to $35.1m this year then $41.2m in 2025. So growth looks nice and strong here, if forecasts are correct.
As a small firm, Windward only has three analyst teams covering it. But they all have a ‘strong buy’ rating on the stock and a consensus one-year price target of 143p. Though just a target and not guaranteed, it’s still 49% higher than today’s price.
Finally, the up-and-coming stock is trading at 3.8 times sales, so doesn’t appear overvalued to me. I’d consider buying shares with spare cash in July.
