Considering its financial position, Aastra Technologies (TSX:AAH) is an extremely volatile stock. The stock traded above $40 in 2007, below $8 in 2008, above $36 in 2010, and has now come all the way back down to $13 in 2011.
One might expect this kind of stock price volatility for a heavily-levered company with a highly-oscillating profit profile. But Aastra is neither of these; it carries negligible debt along with a ton of cash, and has remained profitable throughout the recession of recent years. As such, these excessive price swings in the shares of Aastra are offering investors an excellent opportunity to buy into a good business at a great price.
Aastra markets a range of telephony solutions for large businesses. The company sells its products all over the world, but 80% of revenue comes from Europe. This exposure to Europe, where austerity rules the day, is likely responsible for the stock’s large decline. But this decline is overdone.
Aastra has a cash balance of almost $120 million and has generated operating income of $102 million in just the last three years. Despite this, the entire company trades for just $200 million. Furthermore, the company is entering its strongest quarter of the year, and on its latest conference call management hinted that inventory levels are high by about $10 million. Both of these factors should serve to enhance the company’s cash position even further over the next three months.
Often, when a company has this much cash and doesn’t return it to shareholders, investors rightly become concerned that the money will be blown on an empire-building transaction. But in this case, these fears are likely unfounded. When asked about potential acquisitions on the latest conference call, the company’s co-CEO noted they are “focusing on organic growth” and that there is “enough on our plate”.
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Furthermore, Aastra has been a model corporate citizen when it comes to share buybacks. The company has a history of buying back shares at the most opportune times. For example, in 2008 the company quickly charged through its repurchase authorization and then proceeded to initiate a Dutch auction to buy back even more shares at the depressed prices. (By the way, the company trades at a similar discount to book value today as it did when the company announced the Dutch auction in 2008.) At the same time, the company pays a dividend which yields almost 6% to the current price!
Investing in a good company trading at a great price that has a value-oriented management is a recipe for success. Aastra Technologies appears to be offering investors just such an opportunity.
About the author: Saj Karsan founded an investment and research firm that is based on the principles of value investing. He has an MBA from the Richard Ivey School of Business, has completed all three CFA exams, and has an engineering degree from McGill University. Visit his blog, Barel Karsan. Some of this Saj Karsan’s other stock picks are available here.
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