It seems these days that everyone has a cell phone, an Apple iPhone to be exact. In the span of the last five year, we have seen the home phone, aka the landline, quietly disappear. The reasoning behind this is that most people carry their cell phones on them on a regular basis, not to mention how many other cool things your cell can do over a boring landline. In addition, people do not want to pay multiple phone bills. While this may be the norm in the United States, there are numerous other countries that still rely on the good old landline over cellular use. This is where low cost providers of landline and other telecom services often stay afloat, such as magicJack VocalTec Ltd. (NASDAQ: CALL). The company is based in Israel and certainly has seen an uptick in business with sales over the past five years up 93 percent.
Turning to the fundamentals, magicJack has a market cap of $213.35 million and currently a "strong buy" from analysts. Price to earnings is at 4.56, while forward price to earnings shows up at 6.46. Price earnings growth is deeply undervalued at .26, and shows the stock is undervalued compared to forecast future earnings. Price to sales is at 1.45, price to cash is at 3.54, and price to free cash flow of 4.32.
Despite being highly recommended by analysts and having decent valuation ratios, magicJack VocalTec is expected to see earnings fall 31 percent this year, fall 5.32 percent next year, and rise 17.5 percent over the next five years. However, with that being said, we are seeing huge participation from insiders and institutions. Starting with the insiders, transactions are up just below 150 percent in favor of bullish positions. Insiders currently own 1.5 percent of magicJack's shares.
Turning to the institutional side, big financial institutions own 47.3 percent of outstanding shares and transactions are up 10 percent in favor of bullish positions. Margins are outstanding with a gross margin of 66.4 percent, operating margin of 26.7 percent, and a profit margin of 32.2 percent. Management efficiency ratios are not that great with a return on assets of 36.6 percent, return on equity of -337.3 percent, and return on investment of -212.1 percent. Additionally, short sellers have established a decent hold of the float, with 42.15 percent of magicJack's float dominated by short sellers. However, this could lead to a nice short covering rally one day.
Overall, we have a strange situation here with magicJack. On one hand, we have the analysts who rated it a 1, which is the highest rank and means strong buy. Insiders are buying up shares, institutions are buying up shares, and the company has no debt, and decent valuations. Then we see earnings are expected to fall over the next two years, management efficiency ratios are not very good, and there is a large short float. In the end, I think magicJack should stay on your watch list, until we get a better idea of where the business could be heading.