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djshagggyd (72.81)

Neutral Tandem: TNDM (is giving me a headache)

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July 29, 2010 – Comments (46) | RELATED TICKERS: IQNT

I'm feeling confused about how to handle some news that broke today about Neutral Tandem (TNDM).

Here are some of the issues which caused today's sell-off:

Revenue of $44.8 million, an increase of 8.5% from $41.2 million in Q2'09 -- Adjusted EBITDA  of $19.8 million, a decrease of 4.7% from $20.8 million in Q2'09 -- Net income of $8.5 million, a decrease of 20.4% compared to $10.7 million for Q2'09 -- Billed minutes of 25.9 billion, an increase of 21.5% over Q2'09 

Following the report, their share price dropped about 16%. 

I won't have time to do any thorough research until the weekend... but I was hoping to get a headstart by posting this blog and getting a discussion going.

If anybody's interested in sharing their thoughts/ideas, I'd really appreciate it! 

I own 30 shares of TNDM which I bought for about $16. My original plan was to hold for 3 to 5 years while dollar cost averaging along the way. This weekend I will reconsider that plan to see if it still makes sense.

Thanks Fools and happy Thursday!

~djshagggyd 

p.s.-for more commentary, etc... on TNDM check out this blog I posted a few weeks ago 

 

46 Comments – Post Your Own

#1) On July 29, 2010 at 1:52 PM, rockbox64 (< 20) wrote:

Man, you gotta get outta that stock.  It will kill you.  I feel your pain.  I was in it and out of it last year, always hoping for that lawsuit to clear or whatever.  Go somewhere else with that cash.  JMO.

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#2) On July 29, 2010 at 1:57 PM, ragedmaximus (< 20) wrote:

im no expert but after 1 minute analysis i've concluded a few things one it's a small position you have so you can buy more at this price and more if it keeps falling. 2 sell at a loss ,( i wouldnt) especially if you want to hold for umpteen years.3 .it was at 30 not so long ago and after some unknown time may test that price again. 4. it could be a future takeover target and it is in a sustainable field as we will always need cell phones and computers 

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#3) On July 29, 2010 at 2:04 PM, ragedmaximus (< 20) wrote:

plus 19 seemed like a long running support line and well it may be getting into oversold territory

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#4) On July 29, 2010 at 2:26 PM, djshagggyd (72.81) wrote:

Rockbox and Ragedmaximus-

Thanks for the thoughts!

Raged, thank you for taking the time to do some quick analysis. 

Yeah, right now I'm stuck somewhere between wanting to buy more shares and wanting to bail-out completely. Haha!

Not a good place to be mentally since I am striving to be an intelligent, non-emotional investor :)

I don't think I foresee myself selling out completely... but I don't want to rule it out until I recrunch all the numbers this weekend.

Thanks for pointing out the heavy support at $19... I hadn't really thought of that before.

~djshagggyd 

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#5) On July 29, 2010 at 2:33 PM, djshagggyd (72.81) wrote:

I posted some thoughts on TNDM's board... here is a great reply I got in case anyone else is interested:

 I personally think now is an excellent time to pick up additional shares. In fact, I entered into my first position this morning at $10.80.

Here are the key reasons for that decision:
1) This drop is the result of an earnings "miss" and not a fundamental change in the long term investing thesis. It would be a different story if they missed earnings and announced that Verizon and AT&T are no longer customers.

2) With $186.8 million in cash, cash represents over 50% of the entire market cap of TNDM right now.

3) The TTM and forward P/E of the company are now 10 or below. That's a ridiculous price if you expect the company to grow at all, especially when you factor in point #2.

4) The long term thesis is intact. I do not subscribe to Hidden Gems and therefore don't know the original rationale, but revenues continue to grow, the business model remains both profitable and poised for growth, and there haven't been any shakeups in management or the larger industry. 

Great cash flow, no debt, increasing revenues... these are all good things to me! With that said, I do understand (and can relate) to the different emotions that come with anchoring... I see this as a great buy at $11, but you are likely frustrated about being down over 30% from where you bought in...
Brian  

Here is the link to the original thread if anyone else would like to comment/follow over there. 

I love being able to utilize the boards and the blogs for these sort of things... thanks TMF!

~justin 

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#6) On July 29, 2010 at 2:35 PM, WallstreetKnight (47.68) wrote:

I would pool your resource and invest in a single position.  The impression I get from your posts is that you only have limited capital to work with.  If this is the case then Diversification is actually inimical to your success.

As diversity seeks to mitigate 'specific risks,' too much diversity leaves you outside your area of competency.  Moreover, I only invests in positions in increments of $2,000 USD or more because otherwise the trade commission begins to severely hamper your results.  30 shares x $16 = 480.  This means that if a trade costs $10 you're already down 4% (before calculating gains/losses) if you figure in the cost of entering and exiting the position.  

According to my rough calculations you're down about $150 on this position because of the decline from $16-11 PPS.  So you're down about 30% or so.  That's not bad considering any of my positions  might fluctuate (in this market) by 2-3 times that amount intraday.

What I am saying ultimately is that diversity will cost you more at this stage than not diversifying (generally speaking).  Try and make you're positions minimum $1000 (preferably $1500-2000) to minimize the cost of commissions.

 

Lastly, This is just my opinion. (I was actually in TNDM earlier but sold for a loss from $16-14pps).  The metrics seemed good but considering the decline I chickened out of my original thesis.

Good luck and Fool on! 

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#7) On July 29, 2010 at 2:39 PM, WallstreetKnight (47.68) wrote:

HOWEVER, if you're getting free trades or $4 trades then ignore my posturing.

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#8) On July 29, 2010 at 2:45 PM, ragedmaximus (< 20) wrote:

plus news today said lifetime low share price hint hint

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#9) On July 29, 2010 at 2:47 PM, ragedmaximus (< 20) wrote:

large institutions might see todays price as an opportunity which is not what you are thinking right now and that's they make money and we sell them our shares for a loss. i do it all the time. 

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#10) On July 29, 2010 at 2:51 PM, WallstreetKnight (47.68) wrote:

For perspective, in 2004 (at age 16) I got my first job over the summer at McDonalds.  I knew I was working the most menial job (yet the only one I could do considering no work experience at the time).  So I figured that I would use all the money I saved ($1,720 -ish) and put it all into MCD stock so that I would really be working for 'myself.'  

It's a very juvenile way of thinking about things but 6 years later (and many dividend reinvestments later), despite the rough decade we've had, I'm way up on that position.  I've never bought MCD since, but there it is, still chugging along.

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#11) On July 29, 2010 at 2:52 PM, 1315623493 wrote:

I am sorry but with these fundamentals, the market is just plain stupid. Whoever sold into that 16% is crazy. I would buy, not sell.  

PB = 1.45

Earning Yield = 11.19%

Return on Assets = 15.36%

Net Profit Margin = 23.43%

Current Ratio = 18.17

Debt Ratio = 0.05

Long-term Debt = 0 

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#12) On July 29, 2010 at 2:53 PM, ragedmaximus (< 20) wrote:

keep reinvesting the dividends for your lifetime and youll be rich

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#13) On July 29, 2010 at 3:07 PM, djshagggyd (72.81) wrote:

Wallstreet, Raged, and Betapeg-

All valuable thoughts and advice! Thank you very much. I don't have much time to respond right now, but will be posting more later.

I'm leaning more and more towards using this as an opportunity to DCA at a great price on TNDM...

All the signs point to this being a very irrational sell-off.

Thanks again everyone!

~justin 

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#14) On July 29, 2010 at 3:18 PM, WallstreetKnight (47.68) wrote:

Hmm, 

It will be a nice amount one day in the distant future, but that one position won't make me 'rich' persay.  Maybe if MCD was some small-time burger joint about to go national... haha 

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#15) On July 29, 2010 at 4:31 PM, ragedmaximus (< 20) wrote:

TNDM up 2.8% after hours probably open  up 10% tomm

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#16) On July 29, 2010 at 5:11 PM, djshagggyd (72.81) wrote:

Where is the best place to view after-hours trading prices, etc?

I use TMF and Scottrade for the majority of my research, but can't find it here or there...

Thanks! 

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#17) On July 29, 2010 at 5:18 PM, hendrixcr23 (30.89) wrote:

I agree with most comments. I woke up and saw the stock at 11.00 and quickly snatched up some shares. 

 

With so much cash and no debt with a low p/e this has to be a buy, unless you think management is going to run it into the ground 

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#18) On July 29, 2010 at 5:53 PM, TMFBlacknGold (99.02) wrote:

Hey Fools great comments. I'm in at $11.84 (sorry djshagggyd, but it was a steal at $16 too haha) from a few weeks ago. I was thinking about selling some other holdings to buy in at this crazy low price and average down. Any thoughts on that? I mean, this has to outperform most other stocks from this point, right?

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#19) On July 29, 2010 at 7:20 PM, jlanganki (< 20) wrote:

After the most recent quarter, 53% of the stock price is pure cash.  This company has $186 million in cash, and is raking in about $32 million a year.  If they pull in $30 million a year for the next 5-6 years, they'll have enough cash on hand to pay out a 100% dividend.  Or let's say their cash flow drops by 50% from today's value -- then in 10-12 years they'll have enough cash to pay out a 100% dividend in that scenario.

 Keep in mind this quarter they billed 21% more minutes than the year-ago quarter.  It's not exactly a doomsday scenario.

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#20) On July 29, 2010 at 9:08 PM, rd80 (98.66) wrote:

Where is the best place to view after-hours trading prices, etc?

MarketWatch has the after hours trades and charts.

NASDAQ has tick by tick after hours even for NYSE and AMEX stocks, but doesn't chart it.  Just enter the ticker and click what you're looking for.

MarketWatch's chart is nice if you're looking at just one stock.  If you want to look at a bunch of them, it's fast and easy to switch between quotes at NASDAQ.

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#21) On July 29, 2010 at 9:20 PM, Fool (28.81) wrote:

Yahoo Finance also tracks the after-hours trading in real-time.  finance.yahoo.com.

 I have to agree with all of your rationale:  TNDM is just too cheap to resist!  Going to shake up the portfolio a bit tomorrow morning to get into this undervalued gem.

 Isn't the market strange sometimes?? 

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#22) On July 29, 2010 at 10:20 PM, stan8331 (97.44) wrote:

It's not fun to be as far in the red as I am with TNDM - I made the mistake of buying too aggressively as the stock price was starting to head down.  However, I haven't seen anything to date to indicate to me that the business model is under attack, or that the company is behaving irresponsibly.  It's just a cyclical stock and we're in a bad part of the business cycle.  I picked up a few more shares today.

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#23) On July 30, 2010 at 2:51 AM, djshagggyd (72.81) wrote:

Awesome! Thanks for the responses everyone.

I got a chance to read over their earnings report more closely before the market ended... And I've gotta say I agree with most of you that it seems to be a very good value at these levels.

So I sold a third of my GE (at a 25% gain after commission) and doubled my holdings of TNDM at $10.50 per share.

 

rd80 and TXinvestor-

Thanks for noticing my question up there and answering it! Very much appreciated! 

 

 

WallstreetKnight (@ comment 6)

You are right, I would be better off using increments of $1000 or more. After talking with you and others, that is what I decided to do with my IRA account (tracked as djIRA on CAPS by the way).

For this account though, I am dollar cost averaging in increments of approximately $500. I have about $4500 spread fairly evenly across 10 positions. I make moves as infrequently as possible... but when a situation like this TNDM one comes up, I will occasionally make adjustments to my original plan/timeframe. 

I know that having ten positions in my situation may not be the best idea. But I feel like I am learning a lot. And I'm having fun. And most importantly, my money is getting a lot more done than it would in a normal savings account... I know I probably won't be able to maintain a return this high forever, but since 2008 I'm up 16.5%. I figure if I keep learning... I stick to my plan... and I take things slow... maybe paying a little bit higher commission is okay for a couple years.

Thank you for the thoughts and advice. I appreciate it very much! 

Have a good night WallstreetKnight and everyone!

~justin 

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#24) On July 30, 2010 at 3:02 AM, 1315623493 wrote:

This might also help.

TNDM Report 

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#25) On July 30, 2010 at 8:06 AM, lemoneater (79.38) wrote:

Up 16.5%--Way to go djshagggyd! Wishing you continued success.

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#26) On July 30, 2010 at 8:10 AM, TMFBlacknGold (99.02) wrote:

TradeKing is $4.95 a trade...

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#27) On July 30, 2010 at 8:11 AM, TMFBlacknGold (99.02) wrote:

Haha if you wanna switch I can refer you and we both get $50. Offer is there =P

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#28) On July 30, 2010 at 9:06 AM, ElCid16 (98.07) wrote:

You should read through their 2009 annual report.  Management is skeptical about maintaining such a high rate of revenue growth because of increasing competition and refusal to expand internationally.  Their profit margin has, and will likely continue to, decline year after year.  The number of minutes they've billed out over the past three years has been 40B; 60B; and 87B.  However, the average fee per minute that they've collected has gone from $0.0021 to 0.0020 to 0.0019 over the past three years, too.  So unless management can continue to grow the company at the same rate year in and year out, their revenue will eventually plateau and their profits will do so even more quickly.

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#29) On July 30, 2010 at 10:59 AM, NatalioR (< 20) wrote:

Hi fools

I bougth TNDM shares at 17.65, because I thougth that was a great company and it was a steal at that price. But now after the last drop, I doubt if I'm in the right place or on the contrary at these price  I must buy more shares to lower my average..

I appreciate very much your comments.

Thanks

NatalioR

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#30) On July 30, 2010 at 11:59 AM, djshagggyd (72.81) wrote:

Betapeg- Wow thanks! That report is great! Very helpful... and inspiring. It makes me want to attempt something similar for all the positions in my portfolio. I also checked out your website... looks sharp! Keep up the good work friend.

Lemoneater- Thank you for the kind words! I hope you and your husband have a nice relaxing weekend. 

BlackNGold- No, you come to Scottrade! (then I get free trades...) haha :) 

ElCid16- Cool, thanks for the heads up. I read their 2009 report a few months ago before I opened my position... but I don't remember the details very clearly now. I do remember that they were slowly losing profit per minute billed (as you pointed out)... but if I'm not mistaken, I think that fact is true of the entire industry. Either way, I should definitely take some time and go over that report again... and industry news. Thanks!

NatalioR- I can relate to your disappointment. If you are going to make some adjustments... just be careful and think it through thoroughly... don't go diving for this one unless you feel strongly about it. In my opinion, even with a start price of $17.65, over the course of 5 to 10 years you will probably end up ahead on TNDM. Best of luck! 

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#31) On July 30, 2010 at 12:05 PM, djshagggyd (72.81) wrote:

I think I might try to visit Neutral Tandem's corporate office sometime in the next week or two. Just for fun and out of curiosity. It's pretty close to the neighborhoods my band frequents in Chicago... so it won't even be out of my way.

Once I get around to it... I'll bring a camera and post a blog with pictures. 

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#32) On July 30, 2010 at 12:17 PM, quietnews (26.76) wrote:

I went out and bought more today.  I dumped some GE and increased my TNDM position.  This blog is beneficial.

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#33) On July 30, 2010 at 1:32 PM, djshagggyd (72.81) wrote:

Quietnews-

Haha... that's exactly what I did! 

Glad you learned something from this post... as always, I did too!

Best of luck and Fool on!

~djshagggyd 

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#34) On July 30, 2010 at 1:59 PM, djshagggyd (72.81) wrote:

Here is an interesting reply I got on the TNDM board... from TMFCogitarius: 

 'Does anybody have any thoughts on today's drop?'


Pretty poor operating performance, the perception of a growing threat from Peerless, and a second consecutive miss on analyst estimates - not a happy combination.

Operations: 43% growth in SG&A due to "higher employee expenses, including additional headcount, as well as increased professional expenses" isn't going to be shrugged off in this very spooky market where brutal expense slashing is the norm. Particularly when revenue grew only 8.5% against 21.5% growth in billed minutes - i.e. pricing power erosion. Same story in the previous quarter.
http://www.neutraltandem.com/investorRelations/releases.htm

Competition: CEO repeats his Q1 message of facing 'pressure / challenges'; Peerless seen to be gaining acceptance and targeting TNDM customers - leading to price erosion??

Still guiding to lower end of range

Question - where's the catalyst to resuscitate it?
---------------------------------------------------
Global Gains Home Fool

*****************************************

The question TMFCogitarius poses is a good one:

What will be the catalyst that drives TNDM's share price back up?

Any thoughts?

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#35) On July 30, 2010 at 3:29 PM, TMFBlacknGold (99.02) wrote:

No idea. Eventually the industry will pick up. They need some kind of big announcement, perhaps spend some cash and enhance abroad? They announced this immeadiately after posting their Q2. Not big news, but not bad news either.

http://articles.moneycentral.msn.com/news/article.aspx?symbol=US:TNDM&feed=PZ&date=20100729&id=11756785

 Also, check out WFR. Seminconductor company got slammed today, looks identical to TNDM. They however, do not have such a solid sheet like Neutral Tandem. Nonetheless, WFR should pick up with the industry as well.

  Thats 3 days in a row that a stock on my watchlist has lost 15%+ on earnings reports. (FORM, TNDM, WFR) ='(  good thing I only own TNDM...

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#36) On July 30, 2010 at 10:50 PM, WallstreetKnight (47.68) wrote:

You should sell the pictures to Peerless to recoup any losses you suffered at the hands of TNDM...

Corporate espionage...  :P 

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#37) On July 30, 2010 at 11:22 PM, TMFBlacknGold (99.02) wrote:

^LMAO

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#38) On August 01, 2010 at 12:17 PM, HarryCarysGhost (99.76) wrote:

Nice 25% gian on GE.

Of all the stocks I own this one would be the first to go if a. I needed cash or b. found what I would consider a sure thing.

would like to take this opportunity to say facingwinter completley rocks!

Was able to catch a show this weekend, and we had a great time. Everyone in the band was really nice to us. And these guys are awesome musicians.

So fellow Fools if your ever in the Chicagoland area take the time to see a show. It's a great experience and you'll be able to say you knew them when.

Thanks again for a great show.

p.s- yes I left the same message on facwinjeff42's page. It was just easier then typing all that in again :)  

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#39) On August 01, 2010 at 4:10 PM, 1315623493 wrote:

I am reaffirming my STRONG BUY rating on TNDM after the most recent quarterly results.

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#40) On August 01, 2010 at 10:15 PM, djshagggyd (72.81) wrote:

msftgev-

Thanks for chiming in on TNDM! I always appreciate hearing your opinion. 

And I can't thank you enough for coming to the show Friday. It's awesome making new friends... and who'da thunk it happen through a financial website? Very random and cool.

Thanks again man!

~justin

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#41) On August 01, 2010 at 10:20 PM, djshagggyd (72.81) wrote:

You should sell the pictures to Peerless to recoup any losses you suffered at the hands of TNDM...

Corporate espionage...  :P

You're hilarious WallstreetKnight! I'm on it!

If I get in any trouble I'm certain my attorney can get me out of it.

Right Mischief?

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#42) On August 01, 2010 at 10:27 PM, djshagggyd (72.81) wrote:

BetapegLLC-

Thanks for the info! I'm glad to hear it... I bought more shares for 10.50 a piece on Friday.  (I know I said I'd wait till the weekend to do more research... but I felt like I learned everything I wanted to know by the time the market closed on Friday... so I went ahead and pulled the trigger.)

Have a good night! And thanks again.

~justin

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#43) On August 01, 2010 at 11:05 PM, HarryCarysGhost (99.76) wrote:

Mr. shagggy D.

just to be clear, I was talking about GE. The first party by the name of (msftgev) neither owns nor has placed an analysts anaylsis  on the security known as the second party in this case- Neutral Tandem (tndm).

Dude, we had an awesome time and I will continue monitoring facingwinters websites for future shows to attend.

Your freind, and attorney... ;)

Mischeif.

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#44) On August 02, 2010 at 12:12 AM, thedogsmad (96.95) wrote:

 Hi Shaggy

I did a write up on TNDM (in at 16.37) a while ago, just updated for the CC and Q results.

-- (Hi again Beta) like Beta, I see nothing fundamentally wrong with the company (no fundamental downside only upside).  This is a strong buy for me also (actually the strongest of all I own and am looking at presently) - the earnings hit is directly related to the buildup for the EthEx.  (best guess numbers for both Q's in 2010 is 8M in OPEX and (1stQ) 3M in CAPEX, I don't have any info on CAPEX for Q2.  Total hit to "earnings" for both Q's is 11M - tax of ~4M = 7M+ (again it would show up if they didn't have EthEx) -- this company is still growing it's core business - competition is having a lot of problems on their side and growing slower). My best guess is 11.5% growth so far this year.  Not bad for a cash cow with an effective P/E under 5.TNDM holds 80% market share (Peerless is ~10%)

 On the short term side (6 months) expect more of the same, they won't get the revs from EthEx any time soon, costs are still there mostly in the form of OPEX, and most likely it will take a year minimum to take off (I wouldn't want to try and get back in when the numbers start to hit, IF it's a success - so far it looks very promising) - there is more than one way to look at it.  It's extremely cheap (but that doesn't stop it from getting cheaper), growing it's core business, and has been hit by a Tsunami of bad news (and unfounded as far as I can tell, the worst they can say is it isn't growing as fast, which is bad enough for most growth and momentum investors - the "honeymoon plunge" always brings it down) 

Overall with high margins, low overhead, a small staff, and a call option on EthEx,  I can afford to sit and wait on this one - I'm probably one of the only buy and holders left, lol. 

P.S. I'm a rookie at this so take this with a grain of salt - I just started investing March 2, 2009. (MSFT 15.99 as a long term value, dividend stock - who ever would have thought that, I just couldn't pass up an 8 P/E and 3.3% div)

http://valueinvestingforum.net/value-investing/my-tndm-analysis-feel-free-to-disagree/

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#45) On August 03, 2010 at 12:33 PM, quietnews (26.76) wrote:

Think like Li Lu, potential Berkshire head, on TNDM investment:

 Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."

What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down 

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#46) On October 30, 2010 at 2:19 PM, HarryCarysGhost (99.76) wrote:

After charges of Corporate espionage were filed. I advised my client Mr. Shagggy D to completly remove himself from the grid.

The Federalis are hot on his trail, but with some careful planning, He is able to stay in the underground network.

Godspeed my freind, Godspeed.

 

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