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Friday, May 20, 2022

CASA Systems: Is it a Long-Term Investment for Investors?

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Casa Systems, Inc. (CASA) is a US-based communication equipment provider which delivers the core-to-consumer building blocks to hasten 5G transformation with futuristic solutions and innovative bandwidth for every access type. Its open and cloud-native network solutions suite cracks novel pathways for service providers to build truly global networks and improves its revenue-generating aptitudes. The company’s commercial deployment is in approximately 70 countries and it serves international regional service providers. Although it is ranked 48 out of 51 in the industry, the company has a sound potential to register itself as one of the leading global enterprises in comparison to its peers.

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One of a leading and reputed research organization, Market Research Future, studied in depth the approximate increase in the volume of the global 5G services industry through 2022-2030 and concluded that the market size is expected to reach $249billion with a compound annual growth rate of 29.4% through the projected period.

Introduction and Announcements

Most recently, CASA stock exploded following the grant of a multi-year acquisition agreement from Verizon. Additionally, VZ will also invest up to $40 million in CASA’s common stock, subsequently resulting in a 9.9% possession stake. According to the conditions of the commercial contract, CASA will power VZ’s public Mobile Edge Compute service offering by providing its 5G Core Network Functions. MEC technology moves computing resources on cloud servers at the network advantage to the places where data is generated.

CASA stated on appointing Edward Durkin as the company’s new Chief Financial Officer with effect from April 4. He has brought with him 30 years of executive and financial experience as he already headed the finance department ofFuze, Inc. and Actifio, Inc. CASA also updated that Rogers Communications is driving its next-generation broadband services with the company’s innovative vCCAP and DAA solutions.CASA had collaborated with Rogers to deliver multi-gigabit broadband services at a faster pace with the best subscriber experience.

Catalysts

The major catalyst which drove the company’s shares price most recently is the acquisition of a 10% stake in the company by Verizon which resulted in a gain of 82% in its stock. The company’s stock was on a continuous downwards spiral during the past year and saw a drop of 18% and remained between the high and low range of $3.68-$9.75.

Source: Yahoo Finance

Some of the key reasons behind the dwindling tech sector stocks include slow economic growth and tightening monetary policies from the Federal Reserves along with ever-increasing inflation and interest rates. The market sentiment also becomes negative for the tech stocks because of their longer earnings duration as a substantial part of their value is future earnings outline. As the investors lower their growth forecasts, the current value of these stocks falls faster.

Comparison with Peers

CASA stock when compared to its peers, strengthened the fact that the company is outperforming in terms of the yearly percentage change. As almost all of its peers (including DZSI, ONDS, PCTI, and PEGY) are showing a declining trend excluding ADTN which noted some growth.

Source: Benzinga

When the company’s performance is compared with its peers, it remains clear that CASA outperformed during the year-to-date period and past few months against its major market competitors DZSI and ONDS. Especially in the previous month, almost all the competitors’ stocks became red but CASA stock remained firm.

Source: Seeking Alpha

Revenue

CASA released its quarterly and full fiscal year 2021 earnings in February. The company surpassed the quarterly revenue and earnings expectations by $1.33 million and $0.02. For the full fiscal year 2021, it recorded $401 million in revenue despite facing the supply chain issues in H2 2021. The company posted another magnificent year delivering double-digit quarterly and annual growth. Wireless systems remained the biggest revenue source and growth driver for FY21. Also, the company closed the year with a larger cash balance, increased working capital, and a reduction in its debt.

While comparing the company’s revenue and earnings from the previous years, it becomes clear that CASA revenue grew by 2.05% and 39% over the previous two years. As long as its earnings from continuing operations are concerned, they are decreased by 87% over the past year, proven to be a major setback for the company.

Financial Outlook

For fiscal 2022, the company provided a detailed financial outlook. The revenue estimations range for FY22 is between $380 million to $430 million. Also, the diluted net income (GAAP) estimates for the year ending December 31, 2022, are between $0.10 and $0.28.

Insider Transactions

Source: Seeking Alpha

The total number of outstanding shares of the company is 84.8 million and major shareholders in the company are institutional investors having 29% shares of the company held by them. While the insiders own approximately 18% of the shares. The most recent insider trading reported by the company is from September 9, 2021, when CASA’s Chief Technology Officer sold 110 thousand outstanding shares of the company at a per-share price of $7.02.

Analyst Rating

Most recently, one of the most reputed analysts firm Macquarie rated the company as Outperform, with an upside potential of 12.6%, while the consensus rating given to the company is Market Perform. A total of 6 times, it was rated as upgraded and 9 times as downgraded. The company is gradually making strides in the market with its positive analyst ratings. Also, it has the potential to outperform in the market as observed in its financial outlook for 2022.

Valuation

Source: Yahoo Finance

The company’s enterprise value stood at $451 million with a beta valuation of 1.16 for the last five months. It showed a price-to-sales ratio of 0.86 for the trailing twelve months and a price-to-book ratio of 4.03. CASA is short interest on April 11 by 1.95 million with an average volume of 0.19 million.

Risks

Multiple risk factors are associated with buying the company’s stock and the investors should keep into consideration these factors. It is pertinent that its stock price rocketed up by 82% following its announcement of the award of a multi-year contract from one of the leading telecom conglomerates Verizon. The major factor kept in mind should be the volatility, as the company’s stock instantly gained momentum now. Its stock price did not see a major gain or loss in the past year so the stock is not much volatile. Although volatility is good for boosting a stock, in the last two years, after the pandemic crumbled the global economy, more and more stocks are becoming volatile. Another risk factor is the company’s earnings which are not growing at the same pace as its revenue.

Bottomline

Source: Yahoo Finance

CASA’s financial indicators are pointing towards a brighter future as the overall tech industry is gaining pace. Although its stock is spiraling upward, the company should make a strategy to mitigate the risk factors, so that the investors can confidently invest in the company. Also, it has adapted to the latest technology trends which will also be beneficial in the future.

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