It's no surprise cloud-technology based school communications and administration business MGM Wireless Limited (ASX: MWR) has been interesting some respected micro-cap investors recently.
Growing strongly
Today the business upgraded its half-year revenue and profit expectations significantly from previous guidance that was only issued on December 16, 2014. This suggests the business is seeing exponentially growing sales momentum.
For the six months ending December 31 2014 the business is now forecasting a net profit of $640,000 on revenue of approximately $2.2 million. On the prior corresponding period net profit now looks set to more than quadruple, while revenue is up more than 36%.
In early trade today the stock lifted nearly 20% to $1.34 in response.
What's driving the growth?
The company sells SMS school communication technology solutions that empower schools in their daily administrative functions helping to improve and monitor key deliverables like student attendance, safety and parent engagement.
Once the company signs-up a school on any level it then has the opportunity to upsell higher value products, while it is also investing in developing new products to sell.
Easy to understand and sell functions offered are school roll calls recorded in the cloud, which bring the obvious benefits of speed and functional electronic records.
Clearly the company's sales pitch is working in attracting the attention of those who control the purse strings at schools nationwide. The pitch likely effective in demonstrating the benefits for schools in savings on costs and time, while bringing their communication methods in alignment with the digital future.
MGM Wireless now has a total of 1,143 contracted schools and early learning centres, with potential for far more.
Should you buy?
MGM Wireless is still a tiny company with a market value of around $11 million, which means it is coming off a small base and still offers potential for significant returns. In my opinion it looks one of the best speculative investments on the ASX, but remains a high-risk type investment.
Investors looking for an example of just how successful a business selling cloud-based communication solutions can be should look at My Net Fone Limited (ASX: MNF), which now has a market value around $181 million on the back of ballooning sales.
However, the best way to get rich is to forget the small end of the market and identify rock-solid businesses with consistent track records of growing earnings, competitive advantages, international opportunities and attractive valuations.
