Buying Vonage (VG)

Posted on July 27, 2009

I’ve written about Vonage (VG, current price $0.40) awhile ago, and I now believe the stock offers a good risk/reward at current prices.

Vonage (VG) is one of the leading providers of VOIP services.

The main reasons for entering a position now are as follows:

  • The stock is trading near its all-time low of around $0.30.
  • Almost anyone who hears you mention VG as a potential investment, will shudder at the prospect.
  • There are nearly zero Wall Street analysts covering the company.
  • Despite the negative halo surrounding the company, financials are beginning to show dramatic improvement, with EBITDA jumping last quarter to over $18 million from $8 million last year.
  • Debt has been entirely restructured and there are no near-term major repayments.
  • On the subject of debt: Vonage is highly leveraged, but given their improving cash-flow, we think the company will have an easy time refinancing this debt in the future, at much lower interest rates, and thereby greatly increasing returns for equity holders
  • Valuation is incredibly low with an EV/Sales of around 0.3 despite very good margins and the recurring nature of the business.
  • Incidentally, I have two Vonage lines and have used them happily for five years already. The service is great and I’m probably a customer for life. I’m sure there are many people like me, so clearly there is a business here. How much of a business, I have no idea. But it’s obviously viable, even if it does not have major growth prospects.

    So if VG is able to continue to report solid profitability improvements the value of the company’s equity should increase dramatically. At the same time, if the company disappoints I don’t see much downside, since the equity is already considered practically worthless.

    Comments and Discussions

    The section below is intended to serve as a forum for intellectual debate about particular investment ideas or theories. Please refer to this section for any updates on a particular investment idea. If you have your own thoughts, please feel free to add them. We appreciate your feedback.
    1 Comment so far
    1. […] Even though Vonage (VG) (Recommend Price: $0.40, current price: $0.45) has always been a controversial stock, I don’t think there was much to debate about after the company’s recent financial report. […]

    Leave a Comment

    If you would like to make a comment, please fill out the form below. Please note that we only require an email for editing purposes. We will NEVER publish your email or use it in any way.

    Name (required)

    Email (required, but NEVER published)

    Website

    Comments

    Subscribe for FREE

    Enter your email below to receive free research summaries.

    Enter your email address:

    RSS Feeds:



    Add to Google

    Quick Links


    Recent Comments:

  • Marty Well put! I’m sure you know the answer to your rhetorical question. Those profiting from our... >>Read More

  • Wants to Retire Early Congrats on another excellent call! You have not posted anything about Vonage's... >>Read More

  • df What I think most people don't realize is that the real economy, as opposed to the imaginary economy... >>Read More

  • Alex Just a small note to your great review. LoJack for Laptops does not use any LoJack technology, this... >>Read More

  • Yehuda Hi Thomas, "the obvious way to modify a mortgage is to leave the principal alone, stretch out the... >>Read More

  • Disclaimer:
    This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.