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Amino Technologies crashes 30%: should you load up, or buy this 10-bagger instead?

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Shares of TV internet system provider Amino Technologies (LSE: AMO) fell by more than 30% this morning after the group issued a profit warning.

Adjusted pre-tax profit for the year is now expected to be $11.5m, about 20% below last year’s figure of $14.6m.

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This company produces hardware and software for TV set-top boxes, such as those used by cable TV operators. Management had previously expected that 2018 would deliver “sustainable profitable growth”. So what’s gone wrong?

Trump triggers EM wobble

Amino says that orders have been delayed during the second half of the year due to economic instability in “certain emerging markets”. The company says this uncertainty has been made worse by President Trump’s planned trade tariffs. Rising component prices are also expected to hit profits.

This downbeat assessment is a marked contrast to the more upbeat tone taken in the firm’s half-year results on 17 July, less than three months ago. Back then, the company said it was “successfully mitigating pricing pressure on components” and confirmed that “more than 75% of full-year revenues” were already secured.

The group’s financial year ends on 30 November, in less than two months’ time. I’m disappointed by this late change of guidance. I can only assume that several major orders have been delayed at the last minute.

A bargain buy?

One of Amino’s particular attractions is strong cash generation. This has fuelled dividend growth that’s seen the payout rise by 90% since 2013.

The company says this should continue in 2018, with a dividend increase of “no less than 10%”. Cash flow is said to remain strong and net cash is expected to be above the last-reported level of $15m at the end of November.

However, this payout is only expected to be “maintained” over the next two years, which suggests to me that management isn’t very confident about the outlook for 2019 and 2020.

After today’s fall, I estimate that the shares trade on about 10.5 times forecast earnings with a 5% yield. That’s probably about right for now, in my view. Given the company’s cash balance and previously good record, I’d rate the stock as a hold until we know more.

A superior choice?

One business I am more confident about is cloud computing company Iomart Group (LSE: IOM). It operates a number of well-known UK web hosting companies. It’s one of the larger players in this sector in the UK.

The group’s track record of growth is impressive. The shares have 10-bagged over the last 10 years and are up by 40% since I last covered them in 2017.

Sales have risen by 75% to £97.7m since 2014, while profits have climbed 60% to £12.3m over the same period.

This growth could continue

Iomart has expanded through a mix of organic growth and acquisitions. Debt levels are low and management recently confirmed that trading so far this year has been in line with expectations.

Broker consensus forecasts suggest that adjusted earnings will rise by 10% to 19.9p per share this year. This puts the stock on a forecast P/E of 20.7, with a prospective yield of 1.9%.

This isn’t cheap, but this company operates in a fast-growing sector and has an impressive track record of growth. For long-term investors, I think the shares could still be a profitable buy at this level.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Iomart Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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