1
From the mailbag: another look at Towerstream (TWER)
Topics: Uncategorized, news and viewsReader Alex G. wrote:
I know you didn’t like Towerstream at $1.30 but what about today’s prices? Its trading under net cash! How can that not be a buy?
Good question, and thanks for the email. The short answer is that I like TWER a lot more down here than I did at $1.30 (here’s my original post). I don’t own any shares, but may be a buyer soon. I couldn’t state the bull case any better than Asif Suria, who recently wrote that:
The stock has lost nearly half its value since then but interestingly enough the story has hardly changed and if anything has gotten better. The stock with a market cap of $23.5 million not only sells for below book value of $35 million, it is selling at a discount to the $25.4 million in cash it holds on its balance sheet after removing $2.6 million in debt.
Towerstream reported third quarter 2008 results earlier this month and almost every single metric improved year-over-year with the exception of average revenue per user (ARPU) for new customers, which decreased from $748 in Q3 2007 to $733 last quarter. Gross margins increased from 63% to 64%, ARPU per customer increased from $694 to $827 and churn rate dropped from 1.26% to 1.22%. Towerstream has consistently maintained low churn rates and from what I have heard, customers who have initially purchased an internet line from them as a backup or load balancing solution have often made it their primary internet connection.
I would just add a few points. First, the downturn may actually help Towerstream in the long run if it blocks upstart competitors. That would leave Towerstream as the low cost provider in many markets. Second, Towerstream always has the option of trimming expansion and exiting unprofitable markets, if it so desires.
Bottom line: In an adverse market, cash is king. Towerstream definitely has the cash, giving it a flexibility its competitors do not have.
Get trend analysis for TWER from Ino.com
DISCLOSURE: No position.
Related posts:
Hello,
I think the company is trading under net cash value simply because it is valued on a ‘going concern’ basis. Put in another manner, it reflects the LACK OF DECISION-MAKING of owning a minority interest in the company. You can buy 10,000 shares, but you won’t be allowed to liquidate the company with that, you’ll have to hold on to them until they go bankrupt or have no SH equity left…
If you look at the evolution of the company, its cash is going straight down, the net tangible assets are going straight down every quarter and the company is steadily losing money on its operations.
I would NOT buy any shares of this company under any circumstance, mostly not in this environment.