Recently, a friend of mine asked my thoughts on a stock whose products have been getting some strong exposure lately. Clearwire, a growing name in the wireless broadband arena, is attempting a major coup in the broadband internet industry. Through it's Clear brand, it's trying to lure people away from traditional broadband providers (cable, dsl, phone, etc.) into wireless broadband. If you're from Chicago, you've probably seen the ads around the city.
The Technological Advantage
When chatting with my friend about CLWR, the first question I asked was "How do they expect to compete with names like Comcast, AT&T and Verizon? These big names have huge market penetration already and switching costs can be fairly high for something as integral as internet service."
My friend explained that the key with CLWR is it's technological advantage. All of its wireless broadband service is 4G. Clear claims its 4G service is 4X faster than the current 3G used by the major names. CLWR is achieving this by partnering with Sprint's wireless network which has already been implementing the 4G network for over a year now. On the other hand, the big wireless providers (i.e. Verizon and AT&T) are at least 3-6 months behind in implementing 4G.
This technological advantage gives CLWR the edge in providing a better product than its competition which will help it lure customers away. Having fast wireless internet service anywhere in the city at a competitive price can really help CLWR get the market penetration it needs to be successful.
But The Stock Can Be a Different Story
One of the first things I learned when I started investing is, often times, comparing a company and its stock can paint two very different pictures. CLWR's product looks promising. They seem to be on the right track of changing the landscape of broadband internet. However, the stock looks more iffy and I'll explain why:
1 - Valuation - CLWR's stock is being very richly valued by investors. The price/sales ratio of 5.79 is almost 5X the industry average. A richly valued stock is usually appropriate for high growth companies like CLWR. But 5X I think is pushing it.
2 - Earnings History - After a fairly stable 2008, earnings for CLWR have been increasingly negative for 2009. This is most likely due to an aggressive expansion strategy. Nonetheless, losses are expected to continue their declaration this year.
However, even with these negative components, all hope's not lost. The company has a strong cash base of $1.96 Billion which is enough to cover all its debts. That helps offset the negative earnings. Furthermore, the recent pulback of the stock price has helped reduce the rich valuations, although it's still on the expensive side. Finally, insider buying/selling is pretty neutral, which helps bring confidence that management isn't at least getting out of the stock.
A Mixed Bag
CLWR has a lot of things going for it at this point. However, at least in the short term, I don't think this is the best time to buy the stock. I see continued downward pressure over the next few months. However, long-term, I definitely see strong growth for the company. Analysts are expecting a 92.7% increase in year-over-year sales growth for 2010. That's a tall order for any company. However, I think CLWR is taking the right steps to get there. Furthermore, I think CLWR can potentially be a takeover target by one of the big guys if they decide they want to get a head start in the 4G business.
Bottom Line
I would buy CLWR for a long-term investment. However, I'd first wait until valuations come more in line. It needs to get down to at least $5.50 before I seriously think about getting in. $5 would be a perfect entry point. From that point, I'd keep a close eye on the revenue growth (not so much profit numbers) and, as long as its consistent and meeting expectations, hold on for the ride upwards!
What are your thoughts?
Questions/Comments/Feedback?
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The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
THey will are first and best at what they do (4G), are in the market and the users love the service. They have a big advantage that is always overlooked:
ReplyDeletethey will accept the attachement of any WIMAX capable 3rd party devices, as opposed to the LTE vapor that will be carrier locked and closed.
"How do they expect to compete with names like Comcast, AT&T and Verizon? Well, Comcast is an investor. As is Google and Intel - still think they are not going to survive till profitability? WIMAX is exploding in India as a preferred method of Home Broadband.