Lizzie,
CCUR and Video-on-Demand (VOD). I bought in after earnings so I have a higher cost basis but you may have some interest in this article.
This was posted on the Yahoo! CCUR message board:
Concurring With Insiders' Optimism at Concurrent
By Jonathan Moreland
Special to RealMoney.com
10/14/2002 12:52 PM EDT
Click here for more stories by Jonathan Moreland
What started as a catastrophic week ended on a fairly hopeful note Friday. But I'm still not sure if the recovery on Thursday and Friday is the start of a real rebound or just a minor bounce.
Insiders appear to have been impressed. Last week, 244 companies had insiders file Form 4s at the SEC indicating purchases, and only 180 had insiders indicating sales. That's 36% more companies with purchasers, a data point that successfully halts the slide in our rolling four-week market indicator.
Unfortunately, that's not the same as a return to bullishness, but I'm finding it difficult not to buy into some of the massively beaten-down stocks into which insiders themselves are buying. Among them is Concurrent Computer (CCUR:Nasdaq - news - commentary - research - analysis), a Georgia-based supplier of computer systems for the video-on-demand market and real-time applications.
For more than a decade, the cable industry has been seeking ways to boost sales by getting customers to order new services. A big push into pay per view a number of years ago proved underwhelming, so it's understandable that some investors have yawned at the industry's latest move into video on demand, or VOD.
In the past year, Time Warner Telecom (TWTC:Nasdaq - news - commentary - research - analysis), Cox (COX:NYSE - news - commentary - research - analysis), Comcast (CMCSK:Nasdaq - news - commentary - research - analysis) and Charter (CHTR:Nasdaq - news - commentary - research - analysis) have all started modest rollouts of VOD service. In selected markets, they've bought a few VOD servers, quietly spread word of the service's availability and then watched to gauge consumer reaction.
Judging by customer buying habits, consumers seem set to be eager purchasers of VOD. A series of articles in recent issues of Multichannel News highlighted the head of steam that VOD is building. Cablevision (CVC:NYSE - news - commentary - research - analysis), for example, has found that consumers have ordered an average of nine programs a month. HBO, which offers its programming in a pay-as-you-go VOD format in selected markets, says consumers are ordering up to 12 hours of programs a month. To further the value proposition for cable operators, they're finding that fewer customers are canceling their accounts in markets where VOD has been rolled out.
VOD is catching on, even as marketing dollars have remained scant. As sentiment builds that consumers want -- and will pay for -- this service, more aggressive marketing is likely, which should result in more demand for the specialized equipment needed to deliver the service.
Concurrent is the leading purveyor of VOD systems, and while its share price sits at multiyear lows, its executives are heavy buyers of their own shares. The buying started in June, when shares fell below $5, and picked up substantially when the shares cracked the $3 level. In all, five insiders have purchased 63,500 shares in the past few months.
The company's recent quarterly performance supports insiders' optimism. Sales, which bottomed at $14.1 million last September, rose to $27.8 million in the fourth quarter. Growth would've been even more impressive were it not for the flat results posted by its real-time division.
But upon releasing fourth-quarter results over the summer, management cautioned that cable operators have yet to move aggressively to deploy VOD servers. As a result, they lowered earnings guidance. The earnings outlook for fiscal year 2003 now stands at 14 cents a share, down from an estimate of 15 cents three months ago. Per-share guidance for the year after was also brought down to 23 cents, from a previous estimate of 34 cents.
However, management seems to have lowered the bar to a point where the company can once again start exceeding estimates. Concurrent has topped published estimates for five straight quarters, and guidance for the September quarter looks so low that another positive surprise could well be in the offing.
Top-line growth should lead to even stronger bottom-line growth as recently profitable Concurrent begins to leverage off its fixed costs. Gross margins in the low 50% range, coupled with sales and marketing and research and development each running at 10%, resulted in an operating profit for Concurrent of 9% to 10% of sales. Look for operating margins to expand into the mid-teens by the end of fiscal 2003.
So why has Concurrent fallen from $17 to $2 since January? For starters, investors aren't buying "story stocks" right now. Though shares are quite attractive on the basis of the multiyear view, they looked pricey earlier this year, trading for nearly six times projected sales. The downward guidance certainly didn't impress investors, either.
Also, Adelphia's implosion hammered the entire cable sector, bringing valuations sharply down for suppliers as well. In addition, some were spooked by rumors that Sun (SUNW:Nasdaq - news - commentary - research - analysis) and Silicon Graphics (SGI:NYSE - news - commentary - research - analysis) were eying the VOD market. An entry by either firm would be difficult, as Concurrent and SeaChange (SEAC:Nasdaq - news - commentary - research - analysis) each control about a third of the VOD server market. Those market shares could rise, because privately held competitor Diva has filed for bankruptcy. (Charter, a former Diva customer, has recently become a customer of Concurrent.)
Lastly, cable operators have been dragged through the mud by Hollywood studios that want to ensure that they receive an appropriate slice of the revenue pie. Revenue-sharing issues are now close to being resolved, and that can only act as a catalyst for higher spending on VOD equipment.
In this market, story stocks such as Concurrent have become "show me" stocks. As we head into 2003, Concurrent is a good bet to continue steady growth. That bet seems that much more interesting now that valuations for its stock are reasonable again. It now trades for 14.1 times this year's expected earnings, even though the company's bottom line is expected to increase more than 60% the following year. The company has no debt, and cash on hand equals 49 cents per share.
The company has also made strategic long-term investments equal to another 13 cents per share. Some of this money went into U.K.-based Thirdspace, putting Concurrent in a good position to participate in the European VOD market. On the other side of the Atlantic, delivery of VOD is most practical over DSL lines offered by telephone companies. Thirdspace has technology to make that possible when used in conjunction with Concurrent's systems.
Decent fundamentals and solid prospects explain why insiders have not just hung on to their shares as they declined over the past eight months but have put more of their money on the line. Now that its stock is around $1.50, its risk/reward profile looks even better |
