Time to go bargain hunting with Relm Wireless (RWC - $7.18)

After a horrible past week in the market it is tempting to think that almost all stocks are good buys here because they have just gone down so much. But with so much uncertainty out there I am going to be very picky with what I would consider. First I want a stock that had already been down before this recent market plunge showing that it should hit its bottom first. I also want a company that has just reported a good quarterly earnings report giving good reason for investors to come back in. An added bonus for Relm Wireless is that they came out with news today about a new contract which should really jump start its trip back up.

Relm Wireless makes a lot of different two way radios that are used by everyone from coal miners to homeland security agencies. About 70% of their business come from these government entities which also includes the latest contract they just signed. After problems in communication during national tragedies such as the Oklahoma City bombing and 9/11 a new federal standard was enacted giving a large boast to Relm's business. They are able to meet all the needs of their customers at lower prices then their competitors and business is flowing in because of it. The potential market for their products are only getting bigger as drilling for oil expands around the world, mining all around the world is increasing and industry in general is looking for reliable two way communication that does not rely on flaky cell phone networks. The company is continually releasing new products and are supposedly releasing some new technologies later this year that should boost sales. Overall the long term growth prospects look great.

This is a pretty small stock with a market cap under $100 million. It has decent volume on average for the size of company it is but it is definitely an under the radar stock. Like I said earlier the stock has been on a slide for about a month now dropping from $10 to almost $6. I could not find a reason for this fall and I think this presents a great opportunity after it has fallen more the last week. The past two quarters earnings were up 30% and 60% over their respective quarters a year earlier and the one analyst that covers the stock is looking for 27% long term earnings growth. So a high growth machine like this should have a high P/E right? Well apparently not in this case. Right now it has a measely P/E of 9, if it traded anywhere close to its growth rate it would easily be in the double digits.

I think this stock is way undervalued and under loved. With the news out today on a new contract sending the stock up 6% should be the stake in the ground screaming that it should not go any lower then these levels. I expect more contracts like these in the future as well as new products utilizing new and excting technologies that should propel the stock higher as well. I really think it should get back close to $11 within the next few months and well beyond that with the release of new developments and contracts.