Why Telit Communications plc could be a millionaire-maker stock

Telit chip processor
Telit chip processor

It has been a hugely eventful few weeks for Telit Communications(LSE: TCM). The Internet of Things (IoT) specialist has enjoyed the high point of an order from electric vehicle manufacturer Tesla. However, it has also seen its CEO resign in highly unusual circumstances.

The company's share price has reacted with a considerable amount of volatility, and this could continue in the near term. However, in the long run, it could have growth potential and may help its investors to move towards a seven-figure portfolio.

Uncertain period

The unusual circumstances in which Oozi Cats resigned from his position as CEO have caused the company's share price to decline by 46% in the last three months. According to a recent update from the company, Cats had failed to inform them of an historical indictment in the US which dates back around 25 years.

This was regarding alleged fraudulent activity in Boston, with Oozi Cats subsequently changing his name from Uzi Katz, who was wanted by US authorities. It has become clear in the last few weeks that the two names belong to the same person and, as such, Telit is now searching for a new CEO.

In addition, the company is seeking to beef up its board with the hire of three new non-executive directors. One of them will serve as Chairman, and this could help to improve the company's overall strategy and outlook.

Growth potential

The IoT space could offer significant growth potential for Telit in the long run. In fact, next year it is expected to report a rise in its bottom line of 68%. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 0.1, which suggests there is a wide margin of safety on offer. This could help to protect the company's share price against further turbulence which may arise as it seeks a new management team and improved performance within the IoT market.

Therefore, while the company is a relatively high-risk stock to hold at the moment, it could be worth buying for the long run. Its risk/reward ratio suggests that its future may hold improved returns versus its recent past.

Improving outlook

Also offering investment potential for the long run is global music and audio products company Focusrite(LSE: TUNE). The company reported a positive trading update on Wednesday which showed that its sales and profitability have improved in the second half of the year compared with the first half. This growth has been driven by improved sales of product, some foreign exchange benefits, and the continuing effective management of gross margin.

Due to improving performance, the company's revenue for the year to 31 August 2017 is expected to be £66m. This is a 13% rise on the previous year's £54.4m. And with its trading conditions set to remain positive, it's expected to report a rise in its bottom line of 9% in the current financial year. This could catalyse investor sentiment and push its share price higher.

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Peter Stephens does not own shares in any company mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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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