Airvana, Inc. (AIRV)

navallier:B, moneycentral:8

Great potential for increasing urban Internet efficiency.

Joel Greenblatt/Magic Formula pick, coupled with high rating in CAPSshot (part of the MF Pro subscription)

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FWLT
Timestamp: 2009-05-11 18:02:38 UTC

still undervalued

LMS= AA* 1%50 = AorN

Waiting for the femtocell to divide and multiply ;-)

Femtocell technology has a great chance of taking off being implemented in even more products.

I like the contracts they are picking up as well as the technology.

wireless is bound to grow and new innovations are key to growth

The company is averaging a 4.3% earnings surprise over the last three reported quarters, which means it's consistently managing to beat quarterly Wall Street estimates.

The company has no debt, while also boasting a 117.8% return on equity, which makes for a very sound balance sheet and a good indicator of profitability. It has a very conservative capital structure at the moment, which bodes well for its continued health, and has a year-to-year cash flow growth of 41.3%.

Now, from a purely consumer-oriented perspective - broadband networks are going to continually grow and expand as the use of wireless laptops and cell phones with broadband capabilities increases. Femto technology appears to eliminate "dead zones," or gaps currently in wireless broadband service. Every cell phone company and their brother is advertising "the largest network" and "no more dropped calls"... Seems like even the big guys want a more cohesive network with fewer gaps.

This Fool is in for the long run.

Airvana, Inc. (Nasdaq: AIRV) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

What They Do
Airvana, Inc. offers network infrastructure products used by wireless operators to provide mobile broadband services.

Its software and hardware products, which are based on Internet protocol technology, enable wireless networks to deliver broadband-quality multimedia services to mobile phones, laptop computers, and other mobile devices. These services include Internet access, email, music downloads, video, IP-TV, gaming, push-to-talk, and voice-over-IP.

The company is developing fixed-mobile convergence products and in-building mobile broadband services that would enable operators to take advantage of wireline broadband connections that already exist in offices and homes to deliver wireless services through a combination of mobile and Wi-Fi networks.

Founded in 2000 with its headquartered in Chelmsford, Massachusetts, the company has additional offices Dallas, Texas; Bangalore, India; Cambridge, United Kingdom; Madrid, Spain; Darmstadt, Germany; Beijing, China; Seoul, Korea; and Tokyo, Japan.

Investment Risk Statements
The following statements on investment risk were taken from the company’s latest SEC 10-K filing.

“We derived almost all of our revenue and billings in each of the last several years from sales to a single OEM customer, Nortel Networks."

"Nortel Networks accounted for 99% of our revenue and 98% of our billings in fiscal 2007, 95% of our revenue and 94% of our billings in fiscal 2006 and 16% of our revenue and 98% of our billings in fiscal 2005."

"Our contract with Nortel Networks can be terminated by Nortel Networks at any time and, in any event, does not contain commitments for future purchases of our products. The rate at which Nortel Networks purchases products from us depends on its success in selling to operators its own EV-DO infrastructure solutions that include our products."

"There can be no assurance that Nortel Networks will continue to devote and invest significant resources and capital to its wireless infrastructure business or that it will be successful in the future in such business. Nortel Networks might seek to develop internally, or acquire from a third party, alternative wireless solutions to those currently purchased from us."

"In addition, Nortel Networks may seek to develop an alternative solution by utilizing technology that has been developed by LG Electronics, with which Nortel Networks has a joint venture. Consolidation is common in the telecommunications industry."

"Should Nortel Networks merge its wireless infrastructure businesses with another telecommunications company, Nortel Networks could seek to deploy alternative solutions by utilizing technology that has been developed by the other company."

"We expect to derive a substantial majority of our revenue and billings in fiscal 2008 from Nortel Networks, and therefore any adverse change in our relationship with Nortel Networks, or a significant decline or shortfall in our sales to Nortel Networks, would significantly harm our business and operating results.”

Also from the company’s latest SEC 10-K filing:

“We are developing our FMC products so that operators may offer mobile broadband services using wireline broadband connections and a combination of mobile and Wi-Fi networks."

"We do not expect to have meaningful sales of our FMC products until the second half of 2008 or early 2009, depending on operators’ deployment plans. However, it is possible that the market for our FMC products will not develop as we expect."

"Even if a market for our FMC products develops, it is uncertain whether our FMC products will achieve and sustain high levels of demand and market acceptance."

"Our ability to sell our FMC products will depend, in part, on factors outside our control, such as the commercial availability and market acceptance of mobile phones designed to support FMC applications and the market acceptance of femtocell access point products."

"The market for our FMC products may be smaller than we expect, the market may develop more slowly than we expect or our competitors may develop alternative technologies that are more attractive to operators."

"Our FMC products are an important component of our growth and diversification strategy and, therefore, if we are unable to successfully execute on this strategy, our sales, billings and revenues could decrease and our operating results could be harmed.”

Short-Term Investor (Hold of one year or less)
Based on a recent close of $4.99, the stock has First Resistance at $5.88, an 18% increase from recent levels, Second Resistance at $5.93, a 19% increase from current levels, and Support at $4.00, a 20% decline from current levels.

Long-Term Investor (Hold of 3-5 years)
The stock is on my watch list with a Reasonable Value Estimate of $42.85, a Buy Target of $21.43, a First Sell Target of $41.78, and a Close Target of $45.23. The stock currently has a Risk Reward Ratio of 9.4.

Investment Fundamentals (Based on annual financial data)
For its most recent fiscal year, the company had Shareholder Equity of $2.28 per share, Earnings of $2.27 per share, and based on a recent close the stock has a trailing twelve-month PE ratio of 2.2.

Also for its most recent fiscal year, the company had a Return on Invested Capital of 88%, Average Free Cash Flow of $0.69 per share, a Tangible Book Value of $2.09.

The company has an Enterprise Value of $4.31 per share, an Equity Value of $5.67 per share, and $0.00 Debt per share.

In addition, in fiscal 2007, the company paid a one-time, special dividend of $1.14 dividend.

Investment Ratios (Based on annual financial data)
The company ended its most recent fiscal year with a Current Ratio of 2.20, a Quick Ratio of 2.20, a Cash Ratio of 0.40 a Flow Ratio of 0.18, a Debt to Equity Ratio of 0.00, an Acid Test Ratio of 2.15, a Capital Efficiency Ratio of 1.12, and an Inventory to Sales Ratio of 0.00

Dividends
My thoughts on individual stock dividends is pretty simple, send me the money. I personally am not interested in re-investing individual equity dividends. But for those of you that are, based on a recent close, the on-time special dividend yield for this stock was 22.90%.

The special dividend was paid as stated in the company’s latest SEC 10-K filing:

“On March 8, 2007, the Company declared a special cash dividend of $1.333 per common stock equivalent payable on April 5, 2007 to stockholders of record on March 28, 2007."

"The aggregate payment to holders of common stock and redeemable convertible preferred stock in April 2007 was $72,771 [million]."

"In conjunction with this dividend and as required by the Company’s stock incentive plan, all vested and unvested options outstanding were adjusted by multiplying the exercise price by 0.8113 and the number of shares of common stock issuable upon exercise of the option by 1.2326."

"As the fair value of the modified stock option grants was the same as the fair value of the original option grants immediately before the modification, no incremental compensation cost was recognized as a result of this special cash dividend."

"The option information in Note 10 reflects these adjustments to the outstanding awards."

"The Company has not declared or paid any other cash dividends on its capital stock.”

My Short-Term Investment Strategy
From a short-term or trading perspective, there is no advantage between upside reward and downside risk, so at this time, I have no short-term interest in this stock.

My Long-Term Investment Strategy
Based on my revue of the company’s latest SEC 10-K financial filings, the potential upside reward out weighs the potential downside risk by slightly more than 9 to 1, so yes, I do have long-term interest in the stock.

And In Conclusion
As I said, I do have long-term interest in the stock. The single largest issue I have is the risk factors based on the company’s current sleeping arrangements with Nortel, a company I am personally not fond of.

With that said, assuming my reasonable value estimate is completely wrong, which has been know to happen more than once, I’m really not sure that at recent levels, an investment in this company is a bad move.

Certainly I would hate to loose any money, or see an investment stuck in some sort of a value trap and become essentially dead money for several years. But that’s a risk I think I’m willing to take with this stock, and isn’t taking a risk what investing is all about?

At the end of the day investing is really all about finding a company with great prospects for the future, doing some due diligence, and then taking a risk, or at least that’s what it’s all about to me.

I mean can you imagine where we would be if Columbus had just stayed at home eating grapes and shagging some other dude’s queen?

Wax

Femto technology will enable customers to ditch their landlines entirely.
This is already happened (ing) throughout Japan and parts of Europe.

The company has OEM partnerships with Alcatel-Lucent, Nortel, Qualcomm and most recently Motorola.
They currently sell their high speed wireless technology to Sprint and Verizon.
Their chief officers have worked for NEC, Apple, Motorola, Alcatel, Bytemobile.

They are represented worldwide in booming India and China, Korea and the UK.
The market research firm ABI Research expects that as many as 150 million people could be using 70 million femtocells by 2012.

They have no debt.
200+Mil in cash.
Profit Margin is over 50%
ROE is 200%
ROA is 39.79%

Over 50% of the stock is held by insiders as of 4-8-08.

Has won company of the year in Mass , 2 yrs in a row and awards for one of the top 15 companies on the cutting edge of the Mobile Wireless VoIP industry.

They expect femto cell sales to begin showing in the last 2 qtrs of 08 and then BIG in 09.

Low pe ratio compared to peers. At forefront of femtocells, technology being adopted by all major wireless carriers.

We have a booster in our vehicle which provides amazing power to our cell phones. We live in a difficult area for service continuity so being able to have boosters in our our office and home would enable me to get rid of the land line. Going long on this one.

No. This company will not work out well--field is far too competitive. This company is no investing Nirvana.

Solid As a Rock

Little book that beats the market pick

Extremely undervalued, lots of cash, no debt, great ROI.