Telecom services are in high demand due to the increasing need for advanced connected technologies to facilitate hybrid working and digitalization. In addition, the $1.20 trillion infrastructure Investment and Jobs Act (IIJA) passed last year has devoted $65 billion to nationwide broadband adoption, which should boost the domestic telecom sector.
Moreover, telecom companies are investing heftily in deploying 5G due to the increasing inclination toward next-generation technologies. According to a report by Precedence Research, the global telecom services market is expected to grow at a CAGR of 4.9% by 2030.
Given this backdrop, it could be wise to bet on fundamentally strong telecom stocks Ooma, Inc. (OOMA) and InterDigital, Inc. (IDCC), which are currently trading at discounts to their peers.
Ooma, Inc. (OOMA)
OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada. The company's products and services include Ooma Office, Ooma Office Pro, Ooma Connect, Ooma Managed Wi-Fi, and Ooma Enterprise. It offers its products through direct sales, distributors, retailers, and resellers, as well as online.
On May 24, 2022, Eric Stang, CEO of OOMA, said, “Looking forward, our priorities for fiscal 2023 include extending our leadership serving small business customers through the launch of Ooma Office Pro Plus which enables a higher tier of service, expansion of our sales and marketing reach, increased focus on select vertical markets for Ooma Enterprise, expanding into Europe to serve our largest customer, and execution of the company’s growth plans for AirDial and other 4G/5G solutions."
OOMA’s revenues increased 10% year-over-year to $50.30 million for the fiscal first quarter that ended April 30, 2022. The company’s adjusted EBITDA grew 11.4% year-over-year to $3.90 million, while its non-GAAP net income came in at $3 million, representing a 7.1% year-over-year increase. Also, its non-GAAP EPS came in at $0.12, up 9.1% year-over-year.
Its revenue and total assets increased at CAGRs of 14% and 12.5%, respectively, over the past three years. In terms of forward EV/S, OOMA’s 1.29x is 34.2% lower than the industry average of 1.96x.
For fiscal 2024, analysts expect OOMA’s EPS and revenue to increase 25.6% and 10.6% year-over-year to $0.49 and $234.47 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
It is no surprise that OOMA has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The stock has an A grade for Growth and a B grade for Value, Stability, and Sentiment.
Click here to see OOMA’s ratings for Momentum and Quality. OOMA is ranked #1 out of 20 stocks in the Telecom - Domestic industry.
InterDigital, Inc. (IDCC)
IDCC designs and develops technologies that enable and enhance wireless communications in the United States, China, South Korea, Japan, Taiwan, and Europe. It provides technology solutions for digital cellular and wireless products and networks, including 2G, 3G, 4G, 5G, and IEEE 802-related products and networks.
On July 5, 2022, IDCC announced that it had signed a multi-year, worldwide, non-exclusive, royalty-bearing license with Zebra Technologies Corporation under InterDigital’s standard-essential patents related to 4G and 5G wireless and WiFi technology. Eeva Hakoranta, Chief Licensing Officer, IDCC, said, “This agreement is another sign of our strong licensing momentum.”
IDCC’s revenues increased 23% year-over-year to $101.30 million for the fiscal first quarter that ended March 31, 2022. The company’s adjusted EBITDA grew 63% year-over-year to $55.40 million, while its net income came in at $18 million, representing a 221.4% year-over-year increase. Also, its EPS came in at $0.58, up 222.2% year-over-year.
Its revenue and EPS increased at CAGRs of 15.5% and 33.1%, respectively, over the past three years. In terms of forward non-GAAP PEG, IDCC’s 0.74x is 43.4% lower than the industry average of 1.30x. The stock’s forward EV/EBIT of 10.70x is 27.2% lower than the industry average of 14.69x.
Analysts expect IDCC’s EPS and revenue to increase 88.1% and 1.3% year-over-year to $3.33 and $431.15 million, respectively, in fiscal 2022. It surpassed Street EPS estimates in three of the trailing four quarters.
IDCC’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The stock has an A grade for Growth and a B grade for Value and Quality.
Within the same industry, IDCC is ranked #2. Click here for the additional POWR Ratings for IDCC (Sentiment, Momentum, and Stability).
OOMA shares were unchanged in after-hours trading Thursday. Year-to-date, OOMA has declined -41.63%, versus a -17.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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