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Neutral Tandem Inc. (NASDAQ:<a href='' title='Tandem Diabetes Care, Inc.'>TNDM</a>)Shares of Neutral Tandem Inc. (TNDM) have been under pressure this year as the company struggles to maintain patent protection and fend off a significant competitor. On March 30, Oppenheimer downgraded the stock to neutral after the United States Patent and Trademark Office agreed to reexamine a key patent which is been challenged by Peerless Network.

If the patent is overturned and Peerless is able to more directly compete with Neutral Tandem, the end result would likely cut into margins and pressure what has been a long history of sustained revenue and earnings growth. Since Neutral Tandem began generating a profit in 2006, the company has grown earnings from 15 cents per share to an estimated $1.30 this year – quite an impressive feat for a period wrought with financial and business risk.

One of the reasons the company has performed so well is that management has approached the business from a fiscally conservative foundation. The company currently has no debt and at the end of the fourth quarter boasted $161 million in cash. As part of the fourth quarter earnings press release, the company announced a $25 million share repurchase program which, if traded correctly, could have reduced the share count significantly as the stock traded sharply lower during the first quarter.

TNDM announces earnings on May 5, before the market opens. In addition to hearing information on the patent issue, I am curious to hear how much the company spent on repurchasing shares and how many shares they were actually able to retire. I would love to see that the company acquired the shares at an average price between $15 and $16 although that may be a bit too aggressive. The company did not set an expected period of time in which these shares would be repurchased, but one would think the opportunity in February and early March would allow the company to spend a large portion of the $25 million.

Last quarter, management guided 2010 revenue to be between $185 million and $200 million. I can only assume that these levels will be decreased after the patent reconsideration, but the big question is whether the market has already priced in the disappointment. The current earnings consensus (which should include adjustments made after the patent news was announced) still has the company earning $1.30 this year – representing 7% growth over last year.

With a stock price of $17.36, investors are only paying a bit more than 13 times forward earnings. If you back out the roughly $4.80 per share in cash, the multiple would actually be below 10 – one of the most attractive prices investors have been able to buy TNDM at for since the stock started trading in late 2007.

Today’s market has been rewarding small-cap growth companies regardless of valuation risk. Neutral Tandem certainly has its share of risk, but at the same time that risk appears to be fully calculated into the market price. At this point, any unexpectedly positive announcement out of the patent office could have a significant effect on the stock. If it turns out that TNDM has to compete more directly with Peerless, that will not likely be a huge negative for the stock because analysts already expect this to happen.

Following the announcement, TNDM shares have begun to rebound, and today’s trading puts TNDM above the 50 day average and back in line with where the stock was trading before the March 30 downgrade. I expect the risk to be muted in the stock, and the current positive momentum could be the result of a significant rebound. Even if the stock recoups just half of the loss from $34.56 to a low of $14.50, it would represent a rebound to near $25 – a healthy return for investors today.

So as we wait for the earnings announcement on May 5, I would recommend picking up a starter position in the stock and potentially adding more shares if the announcement is well received. TNDM is a strong growth company with a talented management team. Regardless of the patent issue, the company should be able to grow earnings and continue innovation, strong customer service, and maintain a healthy and growing customer base.

Neutral Tandem Inc. (<a href='' title='Tandem Diabetes Care, Inc.'>TNDM</a>)

Full Disclosure: Author does not have a position in any stocks mentioned in this article.