By Morgan Smith
People tend to be quite positive when talking about companies related to technology-related solutions and services. There are a lot of investments and programs that are in place, so you do not have to worry about these companies running out of clients any time soon. This makes it seem like a good idea to invest in Windstream (WIN), but people have to realize that there is a lot of competition out there. To survive, a company really has to be at the top of its game.
According to experts, Windstream is performing below expectations, and this puts it at risk of falling behind its many competitors. Experts can often get these things wrong though, so one needs to wonder whether they are simply reading too much into the financials without considering all of the aggregate factors. To help look into this further, one should investigate what the company has been up to recently.
Windstream is currently in the midst of making multiple investments that point toward some growth for the company. For example, let us investigate the case of its venture into Data Recovery as a Service. It does not seem to be very big news until you consider the fact that its competitors are seeing the signs and trying to establish their own data infrastructures. Each company will be treading into territory that Windstream has already begun moving into. The revenue may not be obvious now, but in a few months, investors will be glad they took a chance on Windstream stock now.
The company has also had recent activity in Las Vegas, bringing its wide range of VoIP and broadband Internet to businesses in the area. This adds to the other businesses that are already making use of Windstream's services "to run their businesses as smoothly and as efficiently as possible." In addition to this success, Windstream has been chosen by Hickory-based Jackson Group to host its servers, the result of its dissatisfaction with its old data center companies.
As a bonus, Windstream is going to launch its new service, Merge, with a tantalizing sweepstakes that has a multitude of great prizes for the lucky winner of the whole thing. These include a trip to LA, two passes for a back-lot tour of a movie studio, and a five-night stay at the Hollywood Roosevelt Hotel. By no means is this a bad way to launch a new product. It will get people excited, and eager to join. Not only this, but it will boost interest in the product being launched.
Experts really do not see eye-to-eye, and what you hear usually depends on who you talk to. As a testament to this inconsistency, there is another report indicating that Windstream's Quarter 1 profit doubled. This is partly due to its acquisitions and contracts that boosted its revenue from customer and business broadband services. At this time last year, the company made $29.4 million, and from this recent report, it has now made a $64.6 million profit, which is certainly a big jump.
All of this seems to indicate that Windstream is a great stock that people should quickly invest in, but I would recommend stepping back for a moment and considering the other aspects of the company.
There are some doubts about whether or not the company can sustain its high dividend policy amidst all of its capital spending. Windstream currently yields 10.5%. As every investor knows, giving out dividends instead of keeping the money as retained earnings means the company will have fewer funds to use for necessary spending. Taking too much money out and deciding to reward investors immediately does not seem to be a feasible financial decision. This will likely have a negative impact on the company, and it certainly is a reason to move with caution as you consider this stock.
Before any final judgment can be pronounced on Windstream, furthermore, we need to see how the market is shaping up and what the other rivals are doing right now.
Cbeyond (CBEY) has just released a statement saying that it is going to have a beta release of the Microsoft Windows Server 2012, the industry's first cloud-ready server. This is definitely going to turn a few heads and will probably cause celebration from stockholders. This seems like a big step forward and makes this company one to watch, as Cbeyond stock will likely be rising.
CenturyLink (CTL) continues to be recognized as having a good standing in the industry and looks to be a solid company. There might be some road blocks ahead, however, so this might be a good short-term hold for investors. At least for the time being, things seem to be positive for the company, and one could possibly make a good profit on CenturyLink stock.
Primus Telecommunications (PTGI) is another rival that has probably made a very smart move in launching its NBN Co in Tasmania, successfully connecting its first customer to it. This places it a long way from the saturated markets, meaning there is not a lot of competition. As a result of this lack of competition, it can get all the earnings it wants here. Investors need to keep an eye on developments with this company, as it may be marching forward.
One more important company in the industry is the small cloud company 8x8 (EGHT). It recently obtained a new headquarters and is expanding, like most cloud-based companies out there. This company could eventually take, but investors will have to wait and see.
There is certainly a lot of competition in the industry, but Windstream continues to be a much stronger company than some are willing to give it credit for. I do think there is reason to be cautious about the company, but I do think it will be doing well in the future and should bring good things for investors in Windstream stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.