The potential superstock of the week is AudioCodes Ltd (AUDC) . AUDC is a supplier of Voice-over-IP (VoIP) and data communications tec...

Weekly Superstock Scan 23 Oct - 27 Oct: AudioCodes Ltd (AUDC)

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The potential superstock of the week is AudioCodes Ltd (AUDC).



AUDC is a supplier of Voice-over-IP (VoIP) and data communications technology. It designs, develops and sells advanced VoIP, converged VoIP and Data networking products and applications to Service Providers and Enterprises.  AUDC also provides a wide range of products including Media Gateways, Multi-Service Business Routers, Session Border Controllers (SBC), Residential Gateways, IP Phones, Media Servers, Value Added Applications and Professional Services.

AUDC categorize their revenues from products and services into two main lines:

  • Networking - This is split into Gateways, UC-SIP and Applications. These include VoIP Media Gateways, IP Phones, Microsoft specific appliances and mobile VoIP solutions. This line contributes approximately 90% of AUDC's revenue
  • Technology - This consists of chips and boards business products sold primarily to OEMs.

Technical


AUDC has been trading in a range from $5.90 to $7.30 since November 2016. Last week, price broke above the range to close at $8.38. The volume for the week was 2 million shares, more than 5 times its average trading volume.

The catalyst for the surge in price was a press release announcing that BT, one of the world’s leading providers of communications services and solutions, has selected AudioCodes Mediant session border controllers (SBCs) to provide connectivity between BT’s business customers and its SIP trunk service in the UK. 

Fundamental


Including the current quarter, AUDC reported 4 consecutive quarters of year on year EPS growth.

Consistent Growing Pace of Migration to All-IP Networks

For the gateways line, there is continued migration to all-IP networks, mainly in the North America and in Europe. The company believes its an ongoing trend that will extend to 2025 and beyond.

This is a surprise for the company as they have earlier on expected declining gateway revenues compared to 2016 but first half 2017 sales grew by 10% year on year instead.

Growing Deployments of Cloud-Related Solutions

Revenue has slowed down due to slow adoption of the Microsoft Cloud PBX solutions. Is there demand for the service? Yes. The reason for the slow adoption is due to enterprise sitting on the fence while waiting for Cloud PBX to be more mature.

AUDC is expecting the demand to pick up in the coming quarters.

Matrices
- Small float of  20.1 million shares. However, its average trading volume is even smaller at 95 thousand shares. Float approximately 222 times its average daily trading volume.
- AUDC is trading at 25.8 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • High Valuation - At 25.8 times trailing twelve times average, its growth rate can barely support this type of valuation therefore the upside might be limited.
  • Earnings Release - AUDC will report its earnings on 25th October before market open. It is always not advisable to hold through a earnings release without buffer.
  • Microsoft Skype for Business to be Replaced - Microsoft announced at its Ignite conference that it plans to kill off Skype for Business in favor of Microsoft Teams. AUDC derived a significant amount of income from Skype for Business therefore if its solution cannot be adapted by Microsoft Teams, its business will be drastically affected.



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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.