Home > Investment Idea > New Buy: Neutral Tandem

New Buy: Neutral Tandem

This idea is a courtesy of Above Average Odds and Cale Smith. Cale wrote up the idea a while back. Above Average Odds brought it to our attention. I highly recommend reading Cale’s write-up and Above Average Odds interview w/ Cale. I don’t have much more to add besides what has already been written up. Here are a few things that attracted me to the idea:

– The company has a leading position in its industry with no major threat
– The company is using cash flow from current line of business to enter another line, ethernet exchange, which has a huge potential market size.
– Management is using cash flow to buy back shares
– Company has almost 50% of market cap in cash with no debt
– A smart and competent management team at the helm

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Categories: Investment Idea
  1. tedk81
    May 10, 2010 at 11:25 am

    have you seen these counterpoints?

    i had a look at the stock last week, it’d been on my list for awhile. then after i was done i found these linked at the bottom of one of the seekingalpha writeups, and he did a really good job of summing up why i’m not going to be buying it at this price.

    http://randomwalkshortbridge.wordpress.com/2010/03/13/smooth-operator-%E2%80%93-tndm-part-1/

    http://randomwalkshortbridge.wordpress.com/2010/03/20/the-cost-of-obsolescence-tndm-part-2/

    there are a lot of different pressures that are going to shape what happens to this company. prices are already on the way down, voip might or might not put a big dent into them, LVLT is a legit competitor and there is also some regulatory risk. among other things. the nature of their the future is really murky for this company and i don’t think that at this price investors are being fairly compensated for all that murkiness.

    • parasd
      May 11, 2010 at 9:33 pm

      Thanks for the links. I hadn’t read these write-ups but had thought about these points. My take on VoIP is that it not as big a competition that people fear it is. I agree LVLT is a threat but they have been a threat for a long time now and TNDM has done well even with this competitor. The ethernet exchange business is big and TNDM doesn’t need to be big player in it. even if they only succeed to get a very small piece of the pie, you are looking at very big returns.

      My big worry is pricing. The trend has not been good. Although I think it will likely stabilize and TNDM will still make good cash flow. I think the cash, management, and strong cash flow are good safety. The ethernet exchange business is a sleeper that could go either ways.

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