Here's a new company to think of - Veraz Networks (VRAZ) - Strong Buy
Disclaimer: I own this stock.
The company just went IPO around April 10 or so. What do they do - in their own words.
"Veraz Networks, Inc. provides Internet protocol (IP), softswitches, media gateways, and digital compression products to wireline, wireless, and broadband service providers worldwide."
In short, they provide ways and means Veraz products allow service providers to quickly and efficiently migrate from traditional voice networks to all-IP without making expensive hardware purchases.
The company reported earning yesterday. Keep in mind Veraz was in a different business a few years back. They sold Digital Circuit Multiplication Equipment to Telecom providers. They had hundreds of customers. Today they are selling their IP softswitches to the same Telecom providers.
Let's break down the numbers -
Revenues = 27.45 Mil
- 17.65 Mil IP softswitches revenues
- 5.134 Mil DCME products
- 4.671 Mil Services
Okay - IP softswitches revenues and the Services revenue are what matter and they both grew year over year by 98% and 84% respectively. DCME product revenues are going to keep reducing as stated in their prospectus. They are obviously executing well on the IP softswitches sales to the telecom providers.
Last year they made about 99.6 Mil in revenue and lost 15 mil and that's about 4 mil a quarter. This quarter they lost only 1.2 Mil. With revenues growing a 100% in their core area this is peanuts and easily controllable. Revs for the year are expected to be 120 Mil. Again don't get fooled by the growth year over year which is only 20%. Keep in mind that their core product's revenues are growing at a 100% and that has been the case for the last 2 years (look at the IPO prospectus). Even if the growth this year is only 20% as DCME revenues ultimately become really small, next year will be at a 100% if you just look at the revenue trend and the fact that they have sold to only to about 60 IP customers.
Again, let's break down the numbers. Stock is at 6.75, market cap 270 mil. 72 mil in cash and so we are saying that the company is valued at about 200 mil for 120 mil in revenues that will grow at about 100% in 2008. I hope someone understands the absurdity of this situation. Compare this with other companies that just went public and are growing
The market makers scam: Hmm the interesting stuff. This stock's volume is extremely low even for it's low market cap. You have a daily volume of about 41000 stocks and if you follow this stock closely there is absolutely no liquidity on this stock. The stock is showing no interest because retail investors don't understand the company or if they do, they don't have any conviction in their understanding. If I am a market maker, all I have to do is sell about 40,000 stock on the day after earnings and make sure there is no momentum from traders in the stock. Why? Because the stock went up 6% yesterday on a volume of 100,000. Imagine what it could do if momentum trader's volume get's added to it. The price will go up a buck. Traders catch a stock that is moving up after earnings. They don't try to understand an earnings statement. So a market maker can sell say 40,000 stocks today and keep the price low and the momentum traders out. This in turn gives them a chance to accumulate at a low cost basis over the next 3 months until earnings are announced. They keep the cost price low and retail investors will sell thinking this stock isn't going anywhere. No wonder it's low today.
I feel as confident about this company's prospects as I've felt about my call on NFLX at 10 bucks and just like UAUA at 30.
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