When I first got out of college, I had absolutely no idea what I was going to do with my life. All I knew was that I wanted to be close to my now ex-girlfriend.
I was dumb and in love.
I left my hometown in New York at the expense of friendships, family ties, and, most importantly, financial stability.
I found a teaching residency program in Baltimore, Maryland that paid me a measly $20 thousand year. This was just enough money to survive off a healthy diet of Ramen Noodles and store-brand multivitamins.
But none of that really mattered to me at the time – the love of my life lived in Annapolis, just 30 minutes away. I had everything I thought I needed.
Of course, following your heart (and other unnamed organs) before consulting your brain rarely turns out well. The fact is, I was dead wrong.
I absolutely hated my first real big-boy job working as a teacher. Baltimore is a rough place, to say the least. I’ve been pushed, threatened, ridiculed, and simply disrespected by a demographic so unfortunate they don’t know their basic times-table by the 8th grade.
How can I teach unit conversion in two days when these kids don’t know division yet? How can I teach division when they don’t know multiplication? As a matter of fact, how can I teach anything without a door and with swarms (no exaggeration) of cockroaches parading down my classroom walls?
Despite an overall lack of support, I did receive one neat little gadget in response to my grievances: the SMART Board.
The SMART Board was a device that turned my whiteboard into an interactive, touch-based computer. I could create lessons in a slide-show format and engage students in kinesthetic or physical learning. For example, I could create a mix and match game where students would have to come up and move terms next to appropriate definitions.
There was also an online community that allowed teachers to share pre-made lesson plans with interactive educational activities already built in. This was a major time saver and allowed me to focus more deeply on assessment.
The SMART Board made teaching easier for me, and it also made learning more exciting for my students. Needless to say, this was not enough to keep me there, and I still left the field of education.
However, I’ve recently revisited the technology and noticed a far greater profit angle.
Projector Wars
Actually, part of my story was not entirely true – I was given a Promethean ActivBoard, not a SMART Board.
The term “SMART Board” has become the generic trademark in educator jargon for interactive whiteboard technology. Just think Band-Aid, Xerox, or Kleenex.
The Promethean ActivBoard is produced by Promethean World Plc (LSE: PRW) and allows educators to create interactive lessons through built-in software. From personal experience, I can tell you students and teachers absolutely love and have come to rely on the technology.
And these boards aren’t just being used in schools with adequate funding. The school I worked in couldn’t afford the expense of replacing doors or painting walls, but it somehow managed to scrounge up enough money for twenty of these things.
Interactive whiteboards have become standard in our education system – there is one in every five classrooms today.
Promethean World Plc competes directly with SMART Technologies Inc. (NASDAQ: SMT), producer of the original SMART Board. I have used both systems and have to say that SMART definitely makes the better product.
I can also say that SMART is a far better company and should continue to outperform Promethean in the long term.
But my experience with these products is not what’s driving that prediction. I’m far more interested in a few key statistics and future market spaces.
Sometimes the best opportunities are the ones that look the worst. SMART and Promethean are down 26.3 percent and 65.3 percent, respectively, over the last 52 weeks. Both companies have seen quarterly revenue drop around 30 percent.
These two companies were largely overvalued during their IPOs in 2010. Promethean has fallen from 194 to 13 GBX on the LSE, and SMART has fallen from $17 to $1.3 on the NASDAQ.
But despite all this seemingly terrible news, the opportunity for growth has never been higher.
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Key Metrics
One important thing to keep in mind here is that these companies are operating in a cyclical industry – schools have already stocked up on interactive whiteboards and are going to milk whatever they can out of their current inventory.
In 2009, Future Source Consulting predicted that the interactive whiteboard market was showing no signs of recession. This kind of sentiment is part of what spurred the overvaluation of these companies during their IPOs in 2010. But the fact is, Future Source was wrong – well over half of the interactive whiteboards installed today were sold between 2004 and 2007, with sales peaking in 2005.
The industry has seen no significant advancements in whiteboard technology, so schools are holding onto their current units. SMART and Promethean became public right at the top of this wave, which is the main reason why the two stocks have performed so poorly over the past few years.
The cyclical nature of this market has punished SMART and Promethean but will also provide rewards in due time. Once current inventories become outdated, the beginning of a new cycle will spur large boosts in revenue and reward investors who take advantage of low entry points.
And I’m willing to bet that when this happens, SMART will come out way ahead.
When looking at cyclical markets, one of the greatest indicators of potential growth during periods of non-earnings is the price-to-sales ratio. Promethean’s price/sales isn’t very promising at 16.48, but SMART is looking strong at 0.27. Not to mention, SMART’s 5 year PEG sits at -76, indicating a tremendous undervaluing of the stock.
In addition to these key indicators, SMART is doing a few things Promethean is not.
First, SMART has opened its target market to enterprise as well as education. A larger customer base will continue to provide SMART with greater revenue than Prometheus. Currently, SMART dwarfs its competitor with $589 million in annual revenue compared to Promethean’s $157 million.
Second, SMART is producing a product that will blow interactive whiteboards out of the water and will likely begin the next cycle of interactive technology sales.
Touch Screen Projectors
SMART has recently released an interactive projector called LightRaise.
LightRaise can turn any flat surface into a working touch screen. The product is more versatile and significantly less expensive than current SMART Boards due to a massive reduction in hardware requirements.
The lack of a physical screen not only saves money but space as well. And trust me, space is incredibly important in crowded 30-student classrooms.
Teachers can say goodbye to the cart and projector that block views and obstruct seating arrangements – the LightRaise is attached to the wall above its projecting space.
Expect schools to adopt this technology by the masses, just as was done with the on-cart projector and then the SMART Board. When that cycle begins, don’t expect SMART to remain a dollar stock for very long.
Turning progress to profits,
Jason Stutman
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