Kicking the Tires at @Road - TheStreet

This alert was sent to subscribers of TheStreet.com Stocks Under $10 at 8:31 a.m. EST on March 22.

Some under $10 names appear so inexpensive relative to their potential for growth that it makes sense to take a small stake in case something good happens. This looks like the situation with

@Road

(ARDI)

, which closed Monday at $3.93 a share. The company has a solid balance sheet, is trading well off of its highs, and has been growing its product and customer base in a meaningful way. We aren't taking a position here, however, because we already have 20 stocks in the model portfolio.

@Road appeared on our radar screen during a scan for stocks that had significantly underperformed the market this year, but were forecast to grow their bottom line by double-digits in 2006. The company is a mobile resources management (MRM) firm that takes advantage of global positioning satellite (GPS) technology to enable companies, schools or agencies to keep tabs on delivery trucks, repair workers and school buses. Its GPS receivers link up with wireless networks to provide a real-time snapshot of the whereabouts of vehicles or employees in the field. With this real-time data, management teams can make more accurate scheduling decisions and track the productivity of service workers and maintenance crews to look for slack in the system.

The stock is down 45% from its high this year of $7.25 a share -- in large part because of a weak sales and profit outlook provided in @Road's Feb. 3 release of fourth-quarter earnings. However, we believe the company's technology and large footprint in the GPS space makes the stock attractive at its current quote.

While @Road's largest customer,

Verizon

(VZ) - Get Report

, accounted for 17% of the company's 2004 sales of $75 million, @Road last year landed a handful of marquee names -- including phone giant

SBC

(SBC)

and the federal government. These additions make @Road's revenue stream less dependent on one large customer and validates the importance of MRM capabilities in the services industry.

To fend off competition from companies like

Trimble Navigation

(TRMB) - Get Report

and maintain its strong position in the MRM space, @Road is constantly adding new applications and functions to its GPS services. In its most recent quarter, the company released its @Road Solution Suite for Transportation and Distribution, which combines the company's GPS tracking with route compliance, electronic driver logs and vehicle diagnostics.

@Road also recently announced a partnership with leading personal digital assistant (PDA) manufacturer, Research In Motion (RIMM:Nasdaq), to develop the @Road Workflow Manager, which helps streamline the mobile workflow process by identifying and automating communications between people in the field and headquarters. This will build upon the company's tracking technology and allow for mobile messaging from the field to the home office.

Plus, @Road recently closed its acquisition of Vidus, a private provider of field service automation solutions, for 5.6 million shares of common stock and $10 million worth of preferred securities. Vidus, a spinoff of British Telecom (now known as

BT Group

(BT)

), has a strong presence in Europe and should open new markets for @Road products. Management expects the combined company to produce sales of greater than $103 to $105 million in 2005 and be accretive to earnings starting in 2006.

@Road is not without risks, though, and one in particular could be a major dilemma to growth. Both AT&T Wireless and Verizon Wireless have plans to cease operating their Cellular Digital Packet Data networks by the end of 2005. This means subscribers at the two companies would have to use alternative wireless protocols to continue using @Road's technology. Should @Road fail to bring subscribers over to other networks in a timely fashion, there could be a material impact on future financial results.

That said, we believe that a lot of this concern is priced into the stock here, and @Road stacks up well fundamentally. The company finished 2004 with $117.7 million in cash, an 11% increase from the year-ago level, with both sales and earnings forecast by analysts to grow at a healthy double-digit clip for the foreseeable future. The company's $2.00 a share in net cash on the balance sheet makes its valuation even more compelling, with investors paying only 1.7 times 2005 estimated sales after accounting for the cash, vs. an industry average multiple to sales of 5.

Some under $10 stocks are cheap for a reason, but we believe @Road has what it takes to escape from the hole it dug itself into in February.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider @Road to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

William Gabrielski is a research associate at TheStreet.com and is accredited with a Series 7 license. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

David Peltier is a research associate at TheStreet.com In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. They welcome your feedback and invite you to send your comments to

stocksunderten@thestreet.com.