Polycom Inc (PLCM), Cisco Systems, Inc. (CSCO): Plenty Of Risks And Rewards With This IT Company

 Indeed, the company has been keen to point out how cheap it is. For example in its second quarter results it highlighted how it ended the quarter with cash and investments equivalent to $4 a share, and generated trailing operating cash flow of $195 million.

In other words, given its current price of ~$11.00, the stock has nearly 39% of its market cap in cash and investments. Similarly, the trailing free cash flow of around $135 million means it has just generated around 11.8% of its enterprise value in free cash flow. This stock is cheap.

Current trading
In its recent results the company gave forecasts for a “very modest low single-digit growth rate” in the second half of 2013. Moreover the mid-point of its guidance for the third quarter assumes that revenues will be flat for the quarter. This means that it is forecasting a return to growth in the fourth quarter, and analyst forecasts have the company on a 3.8% revenue growth rate in 2014.

This sounds good, but readers should note that it has released a new series of products, which it claims are helping win market share from Cisco Systems, Inc. (NASDAQ:CSCO). The danger here is that the company is getting trapped into a long-term game of investing in new technologies in order to wring out any bit of growth from a market in decline. If this is the new reality then its free cash flow could start to degenerate in future years.

 On the other hand, if it hits analyst targets for 2014, and a better economy encourages some more discretionary IT spending, the stock is a great value.

Where next for Polycom?
Ultimately, an investment decision here will boil down to your opinion on the long-term viability of Polycom’s solutions. Risk seeking investors may love the proposition here, but for more cautious investors a piece-meal approach probably works best. You could always monitor the next few quarters of Polycom’s results in order to see if it is hitting its targets. Meanwhile, it would be useful to see if Cisco Systems, Inc. (NASDAQ:CSCO) can start to report some growth in its collaboration segment.

Polycom is an attractive stock, but it doesn’t come without risk. No one said investing was easy!

The article Plenty Of Risks And Rewards With This IT Company originally appeared on Fool.com and is written by Lee Samaha.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Polycom.

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