The company's services include consulting and integration. Polycom sells its products directly and through resellers, distributors, retailers, and communications services providers; channel partners include AT&T and Ingram Micro.
The company seems to be doing most things right, starting with its balance sheet. There's no debt on the books. There's a large cash position of more than $450 million. Net profit margin is at 10.5% and increasing. Return on equity is expected to be 8.5% this year, up from 7.6% last year. Next year look for 9.5%.
Earnings have been much like the Jeffersons, movin' on up, starting with 35 cents per share in 2004, then more than doubling to 78 cents a share, followed by 80 cents. This year, expect 95 cents and next year should be $1.15. Sales are ramping right along with earnings, going from $540 million in 2004 to a current run rate of $790 million for this year.
Growth has come from global demand. Video revenues were up 24% for the most recent quarter when compared to the same quarter last year. Voice Solutions, another division, saw sales increase by 34% in the same time period. Orders came from North America, EMEA, Asia and Latin America, each with double digit, year over year, increases. Good diversification comes not just from its product base but also its geographic distribution.
One product, HDX, has been especially well received, even though it sells for $20,000 to $25,000 per unit. Picture clarity and sound differentiate it well above any non-HD product. Look for new products coming out of Polycom's pipeline to continue rolling out as well as more acquisitions.
It just bought SpectraLink, a wireless IP telephony, for $220 million in cash in the first quarter. While Polycom is the leader in IP office communications, it lacks a WiFi network product. Now it has one. Polycom also bought Destiny Conferencing in the first quarter for $47.6 million. Destiny uses Polycom's products already but has valuable patents in telepresence technology.
This is a stock worth knowing. Spend some time on the numbers and the story, but be careful of the valuation. With a P/E over 2 times the average P/E for all stocks reporting earnings, maybe all the goodness is already baked into the price. On the other hand, new products and new acquisitions may make for some very positive surprises.
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