Ceragon Networks: Downside Risk Looks Limited

Summary

• Network capacity continues to grow significantly.
• The technicals seem to be pricing this in.
• We aim to sell covered calls in here to reduce basis.

Ceragon (NASDAQ:CRNT) operates in the wireless hauling niche. This company came to our attention because it is a low-priced stock and the stock is optionable. The firm definitely operates in a growing industry as the move into 5G has been underway for quite some time now. In fact, as we saw from the recent third quarter, Ceragon really didn't really miss a beat when it came to its turnover and margins. Sales came in at $70.6 million and gross margin rose above 33%. SG&A came in at $12.9 million which was a substantial $1.5 million lower than the same period of 12 months prior. These bullish trends on the income statement led to a final net income number of $1.6 million.

Whereas many sectors felt the full burden of the pandemic in 2020, Ceragon benefited from the sustained increase of network capacity by operators on a global level. Furthermore, Ceragon has been at the cutting edge of open solution architecture for quite some time now, and since operators are now flocking to this architecture (IP-50 platform, etc.) in order to roll out their networks faster, Ceragon is expected to gain significant market share.

We saw especially during the first few months of the pandemic-induced lockdowns that anything associated with 5G remained essential business. Although uncertainty still remains with respect to how the virus and its variants will play themselves out in 2021, Ceragon's growing 5G design wins and orders should eventually show up on the income statement before long, in our opinion.

Being chartists, we believe that the technicals are the result of the fundamentals and this is exactly what we are seeing on the daily chart. Shares have been making higher highs and higher lows since late April and the 200-day moving-average has acted as solid support during the up-move.

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in CRNT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.