Why PowerFleet Shares Rocketed 31% Today

Shares of small-cap Internet of Things tech company PowerFleet (NASDAQ: AIOT) rallied big on Monday, up as much as 38.8% in the day's trading before ending the day with a 31.1% gain.

As its stock ticker indicates, PowerFleet sells a combined hardware and software platform that melds artificial intelligence (AI) with the Internet of Things. The platform allows large businesses with physical assets to monitor and derive intelligence from machines and heavy equipment across their enterprise.

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PowerFleet reported its fiscal third-quarter earnings today and gave forward guidance, which clearly pleased investors.

PowerFleet delivers on its acquisition promise

Back on Oct. 1, PowerFleet completed the $200 million acquisition of rival Fleet Complete. The rationale behind the tie-up included both cost and revenue synergies, with Fleet Complete giving PowerFleet more scale with telecommunications carriers in the U.S. and Canada, along with strong indirect channel relationships that PowerFleet hadn't cultivated.

The integration appears to be going very well. Revenue grew 45% to $106.4 million in the quarter, ahead of expectations. While adjusted non-GAAP (generally accepted accounting principles) earnings per share came in just shy of expectations, that metric was clearly not given as much importance as others.

For instance, combined adjusted gross margin topped 60%, up from 55.5% in the year-ago quarter, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 77%, much higher than revenue. That showed cost synergies are working.

In addition, management raised its full-year revenue guidance by $10 million, to $362.5 million. Absent the acquisition, that would amount to 7% organic revenue growth. The full-year EBITDA target was also raised to above $75 million, up from $72.5 million prior.

Is PowerFleet an under-the-radar AI winner?

PowerFleet has been strategically acquiring other telematics and IoT peers over the past couple of years, with the Fleet Complete acquisition happening exactly one year after the acquisition of MiX Telematics in 2023.

Roll-up strategies can be risky, but in this case, it appears PowerFleet knows what it's doing, given the increasing software mix and margin expansion following each acquisition. It's an under-the-radar AI stock to watch.

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Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.