Neutral Tandem: Oversold and Underpriced

| About: Inteliquent, Inc. (IQNT)
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Neutral Tandem (NASDAQ:TNDM) provides tandem interconnection services to telecommunication companies wishing to connect to each others' networks. The company offers an alternative to the traditional ILEC tandem services and it operates in specific geographic markets. Revenue is earned through the number of minutes the carrier actually uses as it connects calls through TNDM's infrastructure.

Since the start of the year, TNDM has dropped about 40% from a high of $23.72 to today's 52-week low of $14.50. Now extremely oversold, I think it is time for the bleeding to stop.

On the fundamental front, TNDM is expected to release earnings for the fourth quarter of 2010 before market hours next Tuesday, February 16. The average analyst estimate is .33 per share, which is a cent higher than what was reported in the third quarter of last year, only now the stock is down nearly 40% since that time.

But a closer look at the fundamentals shows the company's condition has actually improved over the last few quarters.

  • The company's cash position has increased in each of the last five quarters from ~106M in the third quarter of 2008 to last quarter's value of ~158M.
  • Its total assets have increased over the same time period from ~190M to ~247M.
  • The company's total debt has decreased over the same time period from ~4.2M to ~698k. The company has zero long-term debt.
  • With shares outstanding of ~33.5M and cash of ~158M, the company's cash per share value is valued at $5 for a "rebate" so to speak of 33% of the company's current price ($14.87 as of the date of this writing).
  • Lastly, the company's earnings are expected to grow at nearly 25% over the next five years while its P/E is currently at 12.93, giving TNDM a PEG of 0.53 and a big rubber stamp of "Undervalued", or at least in my book.

With more cash, less debt, and increasing earnings since the third quarter of 2008 (which brings up another interesting point: the company's earnings have increased in each of the last seven quarters even in times of economic turmoil), the company should be priced at least the same as it was at that time ($15.60) if not much, much higher, which I believe should be the case.

On the technical side of things, the stock is trading near its lower 7-8 month channel line, its RSI and PPO indicators are both extremely oversold, and its MACD and that indicator's histogram are both improving and have both given off buy signals today. All of this adds up to a great entry point for investors trying to get into TNDM.

Chart below courtesy of

Disclosure: Author holds a long position in TNDM