8×8’s financial outlook
The last fiscal year, ending March 31, 8×8, Inc. (NASDAQ:EGHT) had $0.20 in EPS on $107.6 million in revenue. 8×8 has been able to deliver steady revenue growth over the past five years, growing the top-line from $61.6 million in 2008 to where it stands today. Gross profit margins has held steady at around 67.5% over the past few years. With continued marketing and sales initiatives, analysts have been able to ascertain over 17% revenue growth for 2014 and an EPS consensus estimate of $0.27.
A cash generating machine
The company generated over $31 million in cash from operations. Subtracting $5.7 million in capital expenditures and other miscellaneous items, the net change in cash for fiscal 2013 was $27.9 million. This increase is cash from operations is 60% higher than 2012. Compared with Level 3 Communications, Inc. (NYSE:LVLT), which had negative cash flow of $138 million, 8×8 shows to be a smaller and nimbler when it comes to generating positive free cash flow.
Valuation
8×8 currently trades 32 times forward P/E, which is comparatively cheaper than Level 3’s forward P/E multiple of 126. Vonage, on the other hand has been able to be competitive when it comes to valuation attractiveness, but going forward, the outlook for greater velocity in year-over-year earnings goes to 8×8.
Looking back at how 8×8, Inc. (NASDAQ:EGHT) has traded, the stock hasn’t kept pace with the growth it has been experiencing. Additionally, what hasn’t been priced into the stock is the expectations for the industry to balloon over the remaining part of this year into next. Historically, the shares have traded right around 27 times EPS, which isn’t too far off where it is today, so a market premium hasn’t been attached to the price of the shares as of yet.
Conclusion
There is no doubt that the VoIP solutions market is the place to be if you’re looking to invest in the communications industry. As it stands, VoIP products and services are a $111 billion business, and 8×8 is rapidly becoming a force to be reckoned with.
Coupled with aggressive growth, attractive valuations, and a recognizable brand, I believe 8×8 will be a great stock to own going into the second half of this year and into next. Also, be on the lookout for 8×8 to be an acquisition target as this company has started to step on the toes of other, traditional phone companies, such as Verizon and AT&T.
The article 8×8 Should Be a Stock You Own originally appeared on Fool.com and is written by Michael Mandala.
Michael Mandala has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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