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No. of Recommendations: 1
It's a crapshoot alpha. Their OverVoice technology seems to be a good one, but they are strictly a niche player: hotels and MDUs. There is also lots of potential competition. They've been aggressive in rolling it out and the recent deal with Qwest helps speed the process. We won't know whether this works until we see how sales and revenues are doing. The fundamental questions are these:
Will a businessman be willing to pay $10 extra night for high-speed Internet? Can CAIS get established nationwide fast enough to get a good hunk of that market, assuming it exists? Can they get the 30% usage rate that they need to make a profit on this service? Will some cheaper-to-implement technology be invented that makes OverVoice, DSL and copper wires obsolete?
These fundamental questions will have long term impact on the stock price. As for short-term, there are a couple of problems. The IPO was priced at 12-14, but the spring IPO market overheated and the underwriters decided to take advantage by jacking the price up to $19, which is where it came out. If you look at where it was supposed to be and where it is now, it's no big deal. It fell from an artificial high. The second problem is the ATCOM takeover in which CAIS issued a huge slug of stock (my memory is 3.2 million shares) to make the purchase. This dilution pretty much places a lid on any near-term upward momentum. Another factor is the lockup rule, which expires Nov. 23, when insiders will be allowed to sell for the first time.
CAIS could prove to be an excellent long-term investment, but there are many risks involved. I believe until we see some of those risks overcome and a couple of quarters of solid sales and revenue growth (there won't be profits before 2002), this stock is dead money. It has formed a double bottom which suggests it won't drift below 10 1/2 so downside risk for now is low in my opinion.
I am long and intend to add to my holdings over time as the picture clears. One misstep, though, and I'm gone. The chances of complete failure are too high to ride things down to the bottom.
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