Today we have a speculative idea: take shares of IT solutions provider Ciena (NYSE: PRICE), in order to make money on 5G hysteria.
Growth potential and validity: 13% behind 14 Months; 20% within two years; 9% per annum during 15 years.
Why stocks can go up: because recently they have fallen a lot, and growing investment in 5G will be a boon to the company..
How do we act: we take shares now by 58,33 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
Ciena is a service provider, Software and hardware in the field of online communications. The company's clients are everything, who needs to ensure the stable operation of the network: from providers and corporate departments to government and transport infrastructure.
Ciena doesn't produce anything, outsourcing this function, and she herself is engaged in R&D and the provision of services.
According to the company's annual report, its earnings are distributed as follows:
- Goods - 80,99%. Segment gross margin — 47,3% from its proceeds.
- Services - 19,01%. Segment gross margin — 48,6% from its proceeds.
Revenue by segment is divided as follows:
- Solutions for online access to content — 70,5%.
- Network Optimization Solutions — 7,5%.
- Online Systems Management Solutions — 6,4%.
- Blue Planet — 2,1%. These are software automation solutions.
- Support and training services — 7,8%.
- Install and optimize Ciena solutions — 4,7%.
- Consulting and design services — 1%.
Revenue by country and region:
- North America - 69,8%. USA give 62,7% all proceeds.
- Europe, Middle East and Africa - 18,5%.
- Asian-Pacific area - 11,7%.
No country, except USA, does not give more 10% company revenue.
Arguments in favor of the company
Fell down. Recently, the company released a new report, and it turned out to be worse than expected.: problems with logistics and supply affected its financial result not in the best way. As a result, the stock fell from 70 to 58,33 $. Logistic factor has a negative impact on Ciena, but now the company is relatively inexpensive: capitalization 7.7 billion and P / S — 2,54. Think, given the following positive aspects, this will contribute to the rebound of shares.
Future today or sometime later. Extensive investment by large telecommunications companies in the development of 5G will be a boon for Ciena, which will be loaded with work, — even if this is a project for many years to come and right now we will not see the results of these investments. But the very fact of this can, in principle, catch up with a lot of ignorant investors in Ciena shares right now..
Medium- and the long-term prospects of the company look quite promising. With this in mind, a slight decline in margins due to supply issues looks like a seasonal glitch..
Can buy. The company may well be bought by one of its larger competitors like Nokia or Cisco.. Ciena, as we figured out above, is inexpensive, P / Her E is acceptable — 18,41. It is a stable and profitable business with a good final margin higher. 13% from proceeds. Considering, that Cisco recently expressed a desire to shell out approximately 20 billion for a loss-making Splunk, I think, that the grounds for buying Ciena from Cisco are no less.
well, or Ciena can be bought by someone else. For example, some private foundation with an eye on that, to release the company then on the stock exchange again, when the topic with 5G will be on everyone's lips.
What can get in the way
Concentration. According to the company's annual report, 55,5% its revenue is accounted for by 10 its largest clients. The largest of them, AT&T, gives already 12,4% proceeds. Changing relationships with some of the major customers can have an extremely negative impact on the company's reporting..
Logistics. Latest Ciena Report, fixing the situation at the end of January 2022, does not reflect everything, what has happened to the world in the past two weeks. Known events have led to a dramatic change – and lengthening – of transportation routes.. Considering, how much the problems of the previous quarter affected the reporting of Ciena, you should be prepared for unpleasant news in the next six months.
The future has not yet arrived. In principle, the company does not have the worst accounting: 2,085 billion in arrears, of which only 760.328 million need to be repaid within a year, — against 1.118 billion in accounts and 795.247 million in counterparty debts.
But I think, that the company is strongly motivated to spend on expanding and developing the business – and this will serve the bad cause of increasing its debt burden. And this can negatively affect the quotes., since loans will be made in conditions, when they cost more, than now.
What's the bottom line?
We take shares now by 58,33 $. Then there are three options:
- waiting for growth until 66 $ during the next 14 Months;
- we are waiting for the return of quotations to the level 70 $ for the next two years;
- we hold the following shares 15 years, until Ciena can reach its full potential.
