The Long Case for Deltathree: Stock Looks Cheap Compared to Performance

| About: deltathree, Inc.A (DDDC)
Deltathree Inc. (Nasdaq: DDDC) is a company that I haven't written about for some time. Last week it announced that it reached an agreement with Panasonic under which it will be the exclusive VoIP service provider for Panasonic's "Globarange" series of hybrid two-line cordless phones.

Using VoIP technology, the device can be used to call any other device of this kind anywhere in the world free of charge, without connecting through a computer. It can also connect to fixed-line telephones and most important of all, it can connect to broadband Internet services through a socket in the base of the handset. The device was simultaneously unveiled in 12 countries, and it turns out that software that supports it is Deltathree's own JOIP system.

Two years ago, Deltathree stood at $6.50, and it is presently trading at under $2. The company posted $13.2 million in sales and a loss of more than $8 million in 2003, and for 2006 it posted sales of almost $38 million, and a profit of $507,000, undoubtedly an impressive performance. Moreover, in 2007, as the only analyst covering the company predicts, the company will post sales of $43 million and a profit of $600,000. The company's CEO and president Shimmy Zimels spoke of his expectations for the company when it unveiled its 2006 results. He said that he expects the recent acquisition of a company called to Go2Call would add to Deltathree's sales and profit and that sales would come in at around $44-47 million, higher than the analysts' forecast. Judging by this CEO's performance, I am inclined to believe him.

According the forecasts, Deltathree is trading at a multiple of 8.8 for 2007 which, compared with the company's performance in recent years, amounts to an end-of-season price, half-free. The commonly mooted claim is that sometimes there are things that Wall Street does not understand but which the experts do, that appear to be the reason that the stock is incorrectly priced, but in this case it looks to me that very few, if any experts have given Deltathree a closer look, so there could well be an opportunity here that has so far gone unnoticed. But please do me a favor -- check it out for yourselves.

DDDC 1-yr chart

Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.