Outstanding Small Caps, Part 6: Telecom Services

Aug. 6.14 | About: ATN International, (ATNI)

Summary

Small cap stocks are often overlooked by investors when markets are at or near all-time or multi-year highs.

I believe that there are still undervalued/fairly priced small caps available that will make nice long-term investments.

Out of this group of Telecom Services stocks, I believe that Atlantic Tele-Network is currently the best long-term investment option.

Overview

In April/May I wrote a series of articles that ranked the Dividend Champions based on a variety of metrics. Part 1 of that article can be found here.

In this series of articles, I will be ranking stocks of the S&P SmallCap 600 index. Part 1 can be found here and the latest, part 5, can be found here. I will be using the following 10 metrics to gauge each stock by:

  • Revenue Growth (past ten years)
  • Earnings Growth (past ten years)
  • Price Returns (past ten years)
  • Return on Assets (trailing twelve months)
  • Return on Equity (trailing twelve months)
  • Price to Book Value
  • Price to Free Cash Flow (trailing twelve months)
  • Debt to Equity Ratio (annual)
  • PE Ratio (trailing)
  • PE Ratio (forward)

The scoring system is simple. If there are 8 stocks in the industry being reviewed, then each metric will have a score between 1-8, with the best performing stock receiving an 8 and the worst performing stock receiving a 1.

For this article, I will be taking a look at the Telecom Services sector. Five stocks will be reviewed, so each metric will have available scores of 1 through 5.

Because of the higher number of stocks being looked at throughout this series, I will be relying on data provided by ycharts.

The five stocks are:

  • Atlantic Tele-Network (NASDAQ:ATNI)
  • Cbeyond (NASDAQ:CBEY)
  • Cincinnati Bell (NYSE:CBB)
  • General Communication (NASDAQ:GNCMA)
  • Ntelos Holdings (NASDAQ:NTLS)

Atlantic Tele-Network

Value Score
Revenue Growth (past ten years) 254.60% 5
Earnings Growth (past ten years) 1.77K% 5
Price Returns (past ten years) 395.60% 5
Return on Assets (trailing twelve months) 34.84% 5
Return on Equity (trailing twelve months) 53.63% 5
Price to Book Value 1.43x 4
Price to Free Cash Flow (trailing twelve months) 13.38x 5
Debt to Equity Ratio (annual) 0.00x 5
PE Ratio (trailing) 2.99x 5
PE Ratio (forward) 29.39x 5
Click to enlarge

Looking at the table above, you can see that Atlantic Tele-Network was far and away the highest scoring stock out of this group. In addition to its total score of 49 (scoring the highest score in 9 out of 10 metrics), Atlantic Tele-Network is the only company to have positive growth in revenue, earnings, and price returns.

Cbeyond

Value Score
Revenue Growth (past ten years) 234.30% 4
Earnings Growth (past ten years) -240.00% 1
Price Returns (past ten years) -16.80% 2
Return on Assets (trailing twelve months) -6.52% 1
Return on Equity (trailing twelve months) -9.57% 1
Price to Book Value 1.91x 3
Price to Free Cash Flow (trailing twelve months) 27.57x 2
Debt to Equity Ratio (annual) 0.11x 4
PE Ratio (trailing) 367.51x 2
PE Ratio (forward) 224.50x 1
Click to enlarge

Looking at the table above, you can see that Cbeyond scored a total of 21 combined points. The company has seen decent revenue growth over the past ten years, but has seen negative earnings growth and price returns over the same time period. The company also has negative returns on assets and equity.

Cincinnati Bell

Value Score
Revenue Growth (past ten years) 2.89% 1
Earnings Growth (past ten years) -103.00% 2
Price Returns (past ten years) -1.84% 3
Return on Assets (trailing twelve months) -0.50% 2
Return on Equity (trailing twelve months) 1.33% 2
Price to Book Value 1.32x 5
Price to Free Cash Flow (trailing twelve months) 23.38x 3
Debt to Equity Ratio (annual) -3.35x 1
PE Ratio (trailing) 4837.45x 1
PE Ratio (forward) 41.44x 4
Click to enlarge

Looking at the table above, you can see that Cincinnati Bell scored a total of 24 combined points. The company's revenue growth has been flat, while its earnings growth and price returns have been negative over the past ten years.

General Communication

Value Score
Revenue Growth (past ten years) 98.95% 3
Earnings Growth (past ten years) -45.00% 4
Price Returns (past ten years) 37.83% 4
Return on Assets (trailing twelve months) 0.46% 3
Return on Equity (trailing twelve months) 5.22% 3
Price to Book Value 2.84x 2
Price to Free Cash Flow (trailing twelve months) 94.55x 1
Debt to Equity Ratio (annual) 6.71x 3
PE Ratio (trailing) 55.54x 3
PE Ratio (forward) 78.86x 3
Click to enlarge

Looking at the table above, you can see that General Communication scored a total of 29 combined points. The company has seen positive growth in both revenue and price returns, but negative growth in earnings.

Ntelos Holdings

Value Score
Revenue Growth (past ten years) 11.93% 2
Earnings Growth (past ten years) -63.30% 3
Price Returns (past ten years) -29.20% 1
Return on Assets (trailing twelve months) 1.60% 4
Return on Equity (trailing twelve months) 28.89% 4
Price to Book Value 9.07x 1
Price to Free Cash Flow (trailing twelve months) 15.26x 4
Debt to Equity Ratio (annual) 11.64x 2
PE Ratio (trailing) 22.91x 4
PE Ratio (forward) 108.91x 2
Click to enlarge

Looking at the table above, you can see that Ntelos Holdings scored a combined total of 27. The stock seems fairly priced compared to other stocks in this group; however, the company has struggled with negative earnings growth over the past ten years.

Conclusion

Cbeyond was the lowest scoring stock out of this group with just 21 points, while Atlantic Tele-Network was the highest scoring stock with a total of 49 points. The next highest scoring stock was General Communication with 29 points.

Atlantic Tele-Network is the only stock that performed well in every metric. The company has seen nice growth in revenue, earnings, and price returns and appears to be currently fairly priced. The company offers a low yield dividend (currently 1.83%) with a solid growth history (dividend has increased nearly 150% over the past ten years).

Atlantic Tele-Network has a strong history of increasing shareholder equity and I believe that long term investors will continue to see success with this company. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.