Summary
Why you should ignore their latest delayed financial statement and study the business.
Analysis
Sonus Networks (NADAQ: SONS) released preliminary financial data for the fourth quarter and year. It is preliminary because, once again, they are having audit completion issues. the claim is they will have these in place in 15 days. This is very disappointing and to put into perspective Cisco which is approximately 100 times bigger finished its second quarter January 31 and was able to report quarterly results February 6th. Hopefully SONS new CFO can fix this issue.
But what about the business? When Enron was in its hay day it kept reporting big profits and dwindling cash. We all remember where that went. In contrast SONS has been a cash generating machine with over $390M in the bank as of 12/31/2007. They have approximately 269M shares outstanding or almost $1.45/share in cash alone. As a metric I like a cash accumulating company as cash is real and as Enron (as well as others) has shown you must be accumulating cash to have a real business.
The fundamentals of the business sector are excellent. IP telephone traffic as a percentage of all world wide traffic is approximately 25% and growing. Within that category SONS transports about 40% of that traffic and the number and percentage are both growing. There is no other way to say it- SONS is taking market share form their competitors. The nice thing is that at only 25% of the world traffic we know that IP has much room to grow.
Other favorable metrics include:
* Strong international presence in Europe & Asia
* Healthy service business
* Advanced technologies for both wireline, wireless & up coming Femto Cell Technology.
A hidden asset and one which is rarely discussed is the reliability of their offerings. Phone companies are very conservative in nature and they do exhaustive testing of new devices, especially major products at the heart of their networks. SONS has a long history of high reliability. They got their by diligence, architecture and many years of experience in the field. The practical effect of this reliability is that in head to head competition they usually win.
Today (2-29-08) the stock has traded as low as $3.10 a share. No far away from the $1.45/share of cash. Hard to believe this growing business in a growing market is not worth more.
These are the highlights of the business. SONS has lots of room to grow. The conservative forecast given by the CEO makes sense in these turbulent financial times.
Full disclosure: Author is long SONS
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
