P-Com: A Dirt Cheap Internet Stock
individualinvestor.com
Staff Writer: Eliot Walsh 12/8/99
Not long ago, the only two viable broadband conduits were assumed to be either the telephone line or the television cable. But
fixed wireless technology has been gaining prominence as a smart local solution to rolling out high-speed data and Internet
networks.
So who?s the next high flyer?
One possibility: P-Com (NASDAQ: PCMS - Quotes, News, Boards), which makes point-to-point (PTP), spread spectrum,
and point-to-multipoint (PTMP) wireless broadband systems.
The products connect cellular or PCS systems with local telephone companies? mobile switching centers. In addition, the
company develops PTMP wireless networks that connect customers via radio to the Public Switched Network?a fancy name
for the nation?s telephone lines. The system is both highly scalable and significantly cheaper than laying cable from, say, a new
office complex to the backbone of the local telephone company.
Seth Spalding, a broadband analyst from C.E. Unterberg Towbin, says he ?believes in P-Com? because of its strong product
line.
No less important is that the shares are cheap. P-Com has been bouncing along in a range from $4 to $8 most of the past year,
and Tuesday, the stock gained $0.09 to $5.88.
Spalding has yet to publish a report on P-Com, so he hasn?t worked out all the financial ratios, but he notes that the company
?operates in a very attractive space, and is undervalued relative to the others in that space,? including Netro Corp. (NASDAQ:
NTRO - Quotes, News, Boards), Adaptive Broadband (NASDAQ: ADAP - Quotes, News, Boards), Nortel Networks
(NYSE: NT - Quotes, News, Boards), and others.
Netro closed Tuesday at $29.13. Adaptive closed at $51.56, and Nortel?s stock closed at $84.
P-Com?s high-bandwidth broadband radio products are the offspring of a technology that at one point was supposed to
compete with cable for enhanced television programming.
Technological and market limitations held the company back while digital satellite systems, or DSS, and cable took over. But
now, thanks to an improvement in the technology, next-generation fixed wireless is coming to be seen as a cost-efficient,
relatively hassle-free alternative to cable- and DSL-based broadband Internet and data services.
In the third-quarter ended September 30, P-Com lost $0.16 per share, compared with a loss of $0.33 per share a year earlier.
Revenue was up 32.5% to $40.1 million. In the core PTP business, P-Com?s revenue improved more than 90% in the third
quarter versus the year-ago period and grew 10% sequentially.
Gross margins were up year-over-year, to 27%.
The company is not without its problems: P-Com has more than $64 million in debt, and a $30 million bank line which must be
refinanced by February.
But Scott Searle of Dain Rauscher Wessels is very encouraged by some major headway the company has made cleaning up its
books.
?CFO Bob Collins, who came in during the second quarter (April), has done a great job reducing its operating inventory, and
getting rid of non-core businesses,? Searle says.
Although he wasn?t always a believer in the company?s ability to perform, Searle now has a lot of faith in P-Com?s
management. ?I?ve spent a considerable amount of time with the CFO,? he says, ?I like his ideas and I think he is very key to
P-Com?s success.?
Searle expects P-Com?s transformation will show a positive impact on the company?s performance by the second half of next
year.
In the coming quarter, the company expects to shed some dead weight by selling CRC, a unit that provided frame-relay
technology, and lost $1.2 million last quarter.
?P-Com is going through a makeover from a product and a managerial standpoint,? Searle says. ?They?re really re-focusing the
business. The real story now is their multipoint architecture. It lowers the cost per link if you have a lot of users in one area.
With the lower cost you can have more users for less cost.?
Searle estimates $3 million in PTMP sales in the fourth quarter of 1999 and $45 million in overall PTMP sales for 2000. The
company?s total revenue should hit $47.4 million for the fourth quarter of 1999, ramping steadily to $76.4 million by the fourth
quarter 2000.
He estimates the company will achieve profitability by the second quarter of 2000 and forecasts that it will earn $0.10 per
share in 2000 compared to an expected loss of $0.88 per share in 1999.
Bottom Line:
P-Com is a broadband turnaround story. Although its track record has been erratic, the combination of new
management and new products is enough to warrant a closer look at this undervalued play in a white-hot space. |
