Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.
Last month I started a new discussion called "Long-Term Review", which was my way of doing a really long-term review of past stock picks, in fact going back to my first picks in 2003. I would like to continue to go through my early picks discussing each one that is still publicly traded (many have been acquired by other companies). I will try to go through the same regimen as I have with other stock discussions, pointing out what the company does, what the stock price closed at, how the longer-term financials appear, and some valuation information as well as a chart. All of these analyses again depend on 'buy and hold' strategies, instead of the disciplined trading approach that I employ and advocate for in my blog.
On May 14, 2003, writing up my second stock selection for this blog, I wrote about J2 Global Communications:
"May 14, 2003 j2 Global Communications
Scanning those most active lists again today...not much luck until we got to j2 Global Communications. I do not at this time own any share of this stock. It is about 11:30 am Central time here in Wisconsin. Last quarter revenues rose 47% to $15.2 Million (a small company!) Net Income rose to $5 million up from $1.5 million the year earlier. According to CNN.money....j2 Global Communications "provides outsourced messaging and communications services to businesses and individuals throughout the world." I am not sure exactly what they do (!) but they are making money and this is certainly NOT a Peter Lynch approach of I 'saw it at the mall'.
Looking at Morningstar.com, under 5 year financials, this choice is clinched. We see revenue of 0.7 Million in 1997, 3.5 million in 1998, 7.6 million in 1999, 13.9 million in 2000 and 33.3 million in 2001. Trailing 12 months is 43.8 million. These bar graphs are a beauty to behold! In the past 12 months the company has turned profitable. They have sequential earnings and revenue growth...and are starting to generate free cash flow. Thus, the choice to be posted today! Good luck investing....Bob"
Looking through this post, you can see how 'green' I was, and didn't even record the price. The highest price for that day can be found on Big Charts and was $8.92. JCOM closed at $25.71 on 1/12/07, for an effective stock pick price appreciation of $16.79 or 188.2% since posting almost 4 years ago. Unfortunately, I don't own any shares or options on this stock and haven't participated in this stock rise by owning shares.
What does this company do?
According to the Yahoo "Profile" on JCOM, the company
"...provides outsourced, value added messaging and communications services to individuals and businesses worldwide. It offers an array of faxing solutions, including Web-based fax and fax broadcasting at eFax.com; and a suite of unified communications services, including fax, Web-based voicemail, and conference calling at j2.com; as well as a conference calling service to its business services at consensus.com and a unified communications service through Onebox.com."
How did they do in the latest quarter?
On August 1, 2006, the company reported 2nd quarter 2006 results. Quarterly revenue rose 27% to $44.4 million vs. $34.9 million. Earnings came in at $13.1 million up from $11.7 million last year or $.26/share, up from $.23/share in the prior year. More recently, the stock has been under some dark clouds for being late with filing 3rd quarter results and recently reported that they would be taking a $3.5 million charge related to stock option grants and that revenue forecasts would be slightly under expectations.
How about longer-term?
Looking at the latest Morningstar.com "5-Yr Restated" financials on JCOM, we can see that the growth in this stock is still unchecked. They had revenue of $33.3 million in 2001, increased this to $143.9 million in 2005 and $153.7 million in the trailing twelve months (TTM).
Earnings, which were a loss of $(.17)/share in 2001, turned profitable at $.30/share in 2002, and have more than tripled to $1.00/share in 2005 and $1.04/share in the TTM. (all of these results are subject to some small revisions due to accounting issues noted above.)
The company has a fairly stable number of shares outstanding with 45 million reported in 2001, increasing to 48 million in 2005 and 50 million in the TTM. This is about an 11% increase in outstanding shares during a period in which revenue increased almost 400% and earnings were up over 200%. This is certainly what I would call a compeltely acceptable level of earnings dilution.
Free cash flow has been positive and growing with $29 million in 2003, increasing to $55 million in 2005 and $63 million in the TTM.
The balance sheet is absolutely gorgeous with $139.8 million in cash, enough to cover both the $21.8 million in current liabilities and the $.2 million in long-term liabilities combined about 6x over! The actual current ratio, including the $13.9 million in other current assets works out to a very strong (one of the strongest figures on this entire blog!) of 7.05.
What about valuation?
Looking at the Yahoo "Key Statistics" on J2 we find that JCOM is a mid cap stock with a market capitalization of $1.27 billion. The trailing p/e is a moderate 24.10 with a forward p/e estimated (fye 31-Dec-07) at 18.50. With the rapid growth in earnings expected the PEG ratio is reported (5 yr expected) at 0.96. Valuation between 1 and 1.5 is nice. Below 1 is excellent in terms of valuation for a growth investor.
According to the Fidelity.com eresearch website, the company has a Price/Sales (TTM) of 7.67, well below the industry average of 12.16. The company is also more profitable than the average company in its industry with a Return on Equity (TTM) of 25.75% compared to the average of 10.94% in its industry.
Finishing up with Yahoo, we find that there are 49.35 million shares outstanding with 47.75 million that float. Currently there are 6.14 million shares out short (12/12/06) representing 12.8% of the float or 15 trading days of average volume (the short ratio). Using my own particular '3 day rule', this is quite significant, and if the company can get some good news, there well could be a bit of a squeeze of the shorts. However, further 'bad news' could confirm the shorts negative views.
No dividends are paid and the last stock split was a 2:1 on May 25, 2006.
What does the chart look like?
If we review a "Point & Figure" chart on JCOM from StockCharts.com we can see that the stock has been a fairly steady and strong performer increasing from a low of $4.25 in January, 2003, to a high of $32 in July, 2006. The stock has consolidated since and is threatening to break through support levels on the downside where it is trading at this time.
Summary: What do I think?
This sure was a great second stock pick for the blog! I am currently concerned about some of the clouds regarding accounting issues before I could advocate adding a position of JCOM to my own portfolio. The Morningstar.com report is impressive, especially the strong financial position reported. The graph and valuation numbers are also excellent with a PEG under 1.0, Price/Sales low for its group, and ROE high for its group.
Thanks so much for stopping by and visiting my blog. If you have any comments or questions, please feel free to leave them on the blog or email me at firstname.lastname@example.org. Please always remember that I am an amateur and that past performance is no guarantee for future stock price performance! Have a great weekend everyone!