Hi all, this is my first post on ASF, so I thought I would contribute something useful.
Wavenet (WAL) is a former tech darling that is in the process of building a real business. It manufactures wireless modems and value add products, has been increasing sales and profits at a fast rate, and is looking very cheap at 22 cents. For the TA guys, it is in a medium-term uptrend.
I have accumulated a reasonable holding.
The company currently has a $13mill market cap compared to $10mill in the bank, and could earn $1.9mill this year (if we double the half year profit) - a potential forward PE of 6.84.
The downside risk is that revenues may be lumpy and it is by no means certain they will achieve the same success in the second half as in the first.
The company's focus seems to be on growing by acquisition, and they have a substantial warchest to play with.
If they purchase a company that has recurring revenues, I would suggest a substantial re-rating of the stock is likely to take place.
Say they purchase something at 8x earnings for $10mill. If that is re-rated to a fast-growing small company PE of around 16 then that alone would put Wavenet on a $20mill market cap without taking into account any performance from its current business. That translates to a share price of 34 cents.
I don't generally like holding companies on the off chance that they'll make a good acquisition, but Wavenet is trading very close to cash backing and has a profitable core business.
I'm going to continue to hold at current levels, and look for a re-rating upwards on a solid full year result, announcements of new contract wins, or an announcement of an acquisition. To me the company continues to look undervalued.