Getting Back into INAP
Posted on December 2, 2009
INAP (Current Price: $3.75) was one of my biggest winners in 2006. I correctly turned bearish after their Vitalstream acquisition and incredibly, INAP’s stock is now lower than when I first wrote about it back in 2005.
However, I think now maybe a good time to get back into INAP. With the Vitalstream disaster now firmly behind the company, and the new CEO’s sharpened focus on the colo business, it seems likely that INAP could once again shine, particularly given the sky-high valuations now afforded to colo leaders, like EQIX.
Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in INAP. 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.
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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.
On the company-owned collocation business, $66 million in annualized revenues, using an Equinix-Terremark multiple, INAP is worth $6 today. The stock is simply undervalued due to past management’s debacle at Vitalstream. Now with the CDN being rectified, adding in 1x-2x revenues for that segment (including IP bandwidth) you should have a $8-10 stock. With poison pill removal the company is a likely takeover candidate for Limelight, Level 3, Akamai, Savvis, or any number of private equity backed companies like Managed Data Holdings or even SAIC-owned Sector, Inc.
I agree with you, though I’m not sure about specific price targets. What’s interesting is that the analysis of INAP now is exactly the same as it was back in 2006. At that time, I also calculated a $6 price for INAP, based on the EQIX and other colo comps. The Vitalstream acquisition, of course, destroyed the company over the next two years. But, you are right, that now that Vitalstream is out of the way, perhaps the valuation will finally reflect that of other colo providers.
I think the company is concentrating on profitability and this quarter or next quarter they will turn the corner. Good time to enter the stock.
As usual, your timing is fantastic. INAP has really started to run in the past two weeks and hit a new 52 week high today. I agree with others that it is way undervalued compared with its peers, due to past management mistakes.
Your sense of timing with many of your recommendations, including INAP, NAVI and VG is fantastic. Today, INAP hit $6 and I’m sure it’s climb will continue if the company continues to execute and win back the trust of the Street. Not too long ago, it got to over $20 a share - and the demand for colo continues to grow.
Hi Guy,
Thanks. No idea how high INAP can go, if they execute well on the colo side. Colo comp valuations are quite high relative to INAP’s current valuation, e.g. EQIX.
As for timing, it’s quite a bit of luck and a little pattern recognition. But, even if timing is off (e.g. IPAS, CCUR), steady buying on the way down, in low risk situations, will over time prove very profitable.