2.5 Billion Devices Use Products Made by One Small-Cap Stock

There's a good chance that every day you have as many as six interactions with one company before you even get to work.

And no, we're not talking about Facebook Inc. (NASDAQ: FB) or Alphabet Inc. (NASDAQ: GOOGL), or any of the big-name tech stocks.

It's a small-cap stock you've probably heard of.

Its products and services are on display on the branded t-shirt you wear during your morning workout.

Or on the shampoo bottle in your shower.

Or on your credit card you use to buy a coffee and a newspaper.

Or in the print on that newspaper.

Or on the billboard you pass on your way to work.

Or even on the dashboard display in your car.

Many of the world's largest companies rely on this firm's design expertise to deliver their messages to the world.

In fact, this company's work is so ubiquitous, it can be found on about 2.5 billion devices around the world.

Best of all, because it's a small-cap stock with a low profile, sometimes it slips under Wall Street's radar. Which is exactly what's happening now.

That's why it just got a top score from our Money Morning Stock VQScore™ system.

That tells us that right now is your chance to get this outstanding long-term buy at a steep discount...

This Company's Ability to Adapt Has Kept It in Business for 132 Years, and It's Ready for Another Resurgence

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Monotype Imaging Holdings Inc. (NASDAQ: TYPE) has been in business since 1887, when it was founded as the Lanston Monotype Machine Co. in Philadelphia. "Monotype" referred to a kind of metal stamp printing process that the firm's owner, Tolbert Lanston, had patented.

That's a far cry from today's world of inkjets, lasers, and digital screens. But many of the typefaces Monotype developed along the way remain hugely popular. Those include Times New Roman, Gill Sans, and Arial, along with hundreds of others.

In fact, you'd be hard pressed to find a typing or graphics app today that doesn't include one of Monotype's 20,000 or so fonts. And if that's not enough of you, the company hosts MyFonts, the world's largest font marketplace, where you can shop for and download fonts by more than 4,000 independent designers.

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And for brands looking to up their game, Monotype offers consulting and design services to make sure the text of a brand sends exactly the right message.

Just a small sample of clients include Google, Nike Inc. (NYSE: NKE), PepsiCo Inc. (NASDAQ: PEP), Kellogg Co. (NYSE: K), L'Oreal, Crate and Barrel, Prada, and Sonos Inc. (NASDAQ: SONO).

In fact, 45% of the Global 2000 uses Monotype intellectual property. So whenever you're looking at a logo or branded material, from anywhere in the world, there's a good chance the typeface came from Monotype.

That might not sound all that impressive: It's just text, right? But there's a lot of art and science that goes into creating the maximum impact with a brand design. Especially when designers are working with multiple languages.

That was the case with Monotype's typeface design for Chinese conglomerate Tencent Holdings Ltd. (OTCMKTS: TCEHY), whose logo includes both the original Chinese characters and the transliteration "Tencent" in our Latin alphabet to help us Westerners pronounce the name.

Monotype's designers carefully chose a slight italicization of the text to suggest Tencent's future-oriented mindset. An eight-degree slant on the Chinese characters and a 10-degree slant on the Latin letters were just right, avoiding the look that the letters were about to topple over.

From there, some letters needed to be softened to be more readable while still looking modern, and angled chunks of certain letters were sliced out to give a cutting-edge feel.

Once the perfect typeface is developed, Monotype helps an organization's design department stay in sync with its Mosaic font manager. No matter how big the operation is and whatever mix of employees and freelancers it hires, Mosaic makes it easy for everybody to stay on the same page as they create digital and print materials that present the organization's brand to the public.

This product, along with MyFonts, has been an important revenue stream as the typesetting industry has shifted in recent years.

Sales to creative professionals made up a majority of Monotype's total sales for the first time in 2015. These sales are typically much smaller per order than corporate contracts, but the number of sales has been enough to make up for the difference. These sales have grown at a 17% compound annual growth rate (CAGR) over the last five years.

Monotype's ability to adapt to a changing market landscape is nothing new, of course. That's how the company has managed to stay in business for over 130 years.

But the market hasn't been giving Monotype much credit lately - which makes right now your perfect opportunity to pounce.

Now Is the Time to Buy TYPE

At first glance, one can understand why investors would shy away from Monotype stock.

TYPE shares are down 40% over the last five years, coinciding with the period that its sales makeup shifted.

Perhaps some of those losses were merited in 2016, when earnings per share (EPS) slipped 25%.

But the market has missed Monotype's comeback. Sales are up by 162% since 2009. EPS rose 31.5% in 2018, and according to FactSet, it's projected to rise in each of the next three years.

The stock's dividend yield of 2.73% - more than three times the industry average - doesn't hurt either.

Nearly every valuation metric suggests TYPE is undervalued. Its forward price/earnings, forward price/earnings-to-growth, and price-to-sales ratios are between 35% and 40% the industry average.

And Monotype's price-to-book ratio comes in at a 79% discount to the rest of the industry.

So in spite of its recent weakness in the stock market, the signs all point to a resurgence for this storied company.

Because whether you notice it or not, Monotype's products are all around you - like in the typeface of this very article you're reading. And once investors wake up to what they're missing, you can be sure this stock won't be trading for $17 per share much longer.

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About the Author

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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