NOW Corporation Stock Review: Long-term Or Tsupit? | The Investing Engineer

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NOW Corporation Stock Review: Long-term Or Tsupit?

now stock review

A few days ago, I received a request from a reader to do a company valuation of Energy Development Corporation (EDC) and NOW Corporation (NOW). I’m hesitant at first but after the overwhelming response I got from my CEMEX IPO review, I felt that my knack for numbers has given me a new purpose; to provide unsolicited stock reviews (LOLz).

Take note that I’m not an expert. I’m just a normal random guy who happens to know how to read and interpret numbers.

I’m not an investment expert (.. although I’m hoping to be one) and I’m not portfolio rich as well (.. but I’m getting there thanks to the stock market).

​I just find enjoyment in doing this stuff. I feel that every time I do this, I learn something new and that’s why I now love doing these things.

So enough for the drama. In this post, I’ll be talking about NOW Corporation (NOW). This stock is a tsupitero’s favorite and in case you’re wondering if I’ll be doing some chart analysis, nope! Not gonna happen.

I’ll discus about the stock on a business perspective. I’m going to dig into the numbers to find out if there’s real value hidden in this company. So without further adieu, here’s my NOW stock review.​

Update 2-19-2018: Check out this new post about NOW's upcoming preferred shares offering which I think will turn out into a good investment idea.

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How NOW Corporation Makes Money​

NOW is in the business of providing telecommunications, media and information technology products and services. Among these products and services include;

  • Broadband Telecom Services
  • Communications Network Services
  • IT Infrastructure Services
  • IBM Smartcloud Services
  • Collaboration Software Solutions
  • Content Distribution
  • Digital Marketing
  • Human Resource Management System
  • Information Technology Resource Management Outsourcing
  • Managed Services Outsourcing
  • Live Streaming
  • Website Development
  • Mobile Applications Development
  • Telematics

So in a nutshell, NOW makes money by selling these products and services to various organizations in different industries.

The thing about technology companies is the risk of losing to competitor’s new products or services that erodes competitive advantage. To minimize this risk, NOW should continuously come up with new and better products and services.​

Valuations

A company is attractive if it can generate steady earnings and cash flows. I analyzed the Income Statement and the Cash Flow Statement and it turns out that NOW fails in this regard miserably.

now stock review

Fig. 1 Income Statement Results

now stock review

Fig. 2 Cash Flow Statement Results

We can see that NOW recorded net losses from 2010 to 2014 and negative cash flows from 2010 to 2015. The data above tells me that NOW is a very distressed company. Since earnings and cash flows are negative in most of the years, its hard to put a value in this company. So I looked at this in a different perspective and used EV/EBITDA.

Enterprise Value of NOW last 2015: Php 1,166,479,091

EBITDA last 2015: PHP 11,365,845

EV/EBITDA turns out to be 102.63. To get a clearer picture of what the numbers mean, I made a chart to illustrate the comparison of different EV/EBITDA multiples of the other telecom and information technology companies below.

now stock review

Fig. 3 EV/EBITDA

I want to include Island Info & Tech Inc. (IS) and ISM Communications Corp. (ISM) in the comparison but both companies have negative EBITDA last 2015 suggesting cash flows and profitability issues to those two companies. So I just compared five companies including NOW. The others where Globe Telecom (GLO), PLDT (TEL), Philweb Corporation (WEB) and YEHEY! Corp. (YEHEY).

In the five companies presented, I will more likely to buy GLO or TEL rather than NOW. The high EV multiple of NOW (102.63) makes it look like an expensive company to buy even at a year-end closing price of PHP 0.75 per share.

Besides, who would want to invest in a company that has negative earnings and cash flow anyway? The company is just too speculative to me.

Book Value​

The Book Value per Share for the past 7 years gives me a clearer picture of what the company is worth as illustrated below.​

now corporation stock review

Fig. 4 Average BVPS is PHP 0.83.

Taking the average book value per share for the past 7 years gives us a value of around PHP 0.83 per share. In my opinion, this price can be considered as a buy price benchmark based on equity alone. Anything higher and you might end up paying more for a company that so far is losing a lot of money.

Final Thoughts​

As a value investor who buys stocks on a business perspective, I don’t see myself investing my money here. Even if I buy this stock based on its book value, it still doesn’t fit my criteria because of the negative earnings and cash flows it reported in the last 7 years.

Yes, they may someday produce a software or an online service that’s so innovative that may drive their sales high overnight. Even if that happens, there’s still no proof of the sustainability and growth of that earnings yet. Besides, assuming such things just throws us to the world of speculation.

This concludes my NOW Corporation stock review. So what do you think? Is NOW a good investment for the long-term? For questions and reactions, you may kindly leave your comments below.

Happy investing!​

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  • jared keith manacpo says:

    thank you for this evaluation sir. more power to you. Godbless.

  • Aldwin says:

    Great valuation Mark! It all comes down to earnings. Though it’s bullish right now, I wouldn’t bother trading it as well. As a value investor, like yourself – I’d only invest in companies with good fundamentals. As always, timely and very informative.

  • Jay De Guzman says:

    Hello! Your reviews are amazing and I really appreciate your effort of sharing them to us! I’m new to investing and I also want to review the stocks that I’m interested in before taking action. Would you mind sharing where you get your data? I can’t seem to find annual data like these on simple google search. Thank you!

  • Mylene says:

    I was tempted to buy this few days ago. Buti na lang hindi ako nakabili sa price na gusto ko. Nagtitrend po kasi at parang ang daming nagi-insinuate na bulimi 😀 Buti na lang talaga.

    Thank you for sharing your analysis and thoughts.

  • Dinno says:

    Thank you Sir. I love your work

  • laarnie says:

    Thanks Sir, sobrang worth reading. Sana ganyan na din ako kagaling mag analyze ng market. 🙂

  • Alfredo says:

    Hi Sir!
    Very informative as well. It would be nice to hear your two cents worth every time you publish them. Please include me in your mailers list.
    Best regards!

  • Engr. Jonathan Oestor says:

    Can you please do evaluation on ABS?

  • Dark Debonair says:

    Hi! What companies do you invest in today?

  • ERIC VENTURA says:

    Very informative sir!!! KUDOS!!!

  • Bin Rashid Chin says:

    A student of value investing. I admire people like you sir. You look at things with rationality. In the world of stocks, its hard to think rationally if you factor in the speculations of others especially when they talk about steep growths. So for me, its good that i can read some opinions from a fellow value investor to strengthen my resolve in resisting speculations. I hope to read more.

    P.S. Any thoughts about Double Dragon?

    • Thanks Bin. I’m currently polishing my valuation methods that’s why I haven’t posted for a while. About DD, there’s too much optimism on its ability to generate those earnings in relation to its price. The valuations say to stay away for now. Operating cash flow and FCF has been negative since 2012 and the recent quarter still negative. Their debt settlement capacity does not look good (e.g negative FCF, Current Ratio for latest quarter is 2.19). You can’t even come up with an accurate intrinsic value but the PEG ratio today tells us that DD is overvalued (PEG = 1.6x; based on YoY growth).

      They offered 10-year bonds; twice last year I think.. this tells me that they need lots of capital to fund those Citymalls. There’s no real cash yet in this business and as a value investor, I don’t invest in businesses that hasn’t yet produced real income.

      Most of my stock picking criteria doesn’t satisfy DD so I don’t try to ride the flying dragon.

  • Fredierick Mar J Uy says:

    Sir can you do CPG review?

  • Josh says:

    Great ideas!!!

  • ed says:

    Thank you so much sir so far this is the best website to gain information on investing on the stock market. More Power.

  • Catherine Pangan says:

    Very informative. Sir can you please do a review on RWM? Thank you.

  • joy says:

    Hi Sir Ed,

    Thank you for sharing your thoughts and analysis. Too late reading this post. I already bought NOW(3.2) & DD(58) at higher price and still waiting for it to up again. Maybe takes a while to wait. (hoping)

    I wanna invest on another stock but scared coz i’m not good on identifying good stock. How i wish i could learn how to evaluate the standing of a company like you do but i see it too complicated. I’m doing a daily stock trading and i noticed that i wasn’t earning in 1yr time. I’m still positive i can have profits in the future. I see MAC this time with an upward trend and i’m interested. How do you see Macro Asia Corp? Is it a good one?

    -joy

  • Loi says:

    So what NOW? 😁

  • Sha says:

    Hello sir! This is a very informative article indeed. Are you going to do another review on NOW? It seems like the value is increasing the past few days. What’s your take on this? Thank you for being helpful. Especially for newbies like me. We need more articles like this. 🙂

    • Hi Sha,

      NOW is skyrocketing because of speculations that the company may become the 3rd Telco player. That positive sentiment is driving its share price up.

      Now, you can make money in this telco play by taking advantage of the market psychology behind it. Fundamentals really don’t matter right now. As long as the enthusiasm is high, the price will just shoot upwards. Profit taking may take place at certain levels which will cause price retracements and then price will just continue to go to the moon.

      2 things may happen: If NOW becomes the 3rd Telco, people may start dumping the stock to take profits because the news may already been “priced in” by the market. Or it can shoot up more then stabilize to a level where the market players perceive it to be.

      I personally don’t engage in these kinds of play, because there’s uncertainty on how this will go. If you really want to speculate, then buy on dips, look at the hourly chart and enter on tranches.

      If the only reason that you’re buying is because you see all the other people are buying, then think again. Plan your entry and plan your exit as well. DON’T GO IN WITHOUT A STRICT EXIT PLAN. Good luck. 🙂

  • Veron says:

    Hi Sir Ed, Thanks much for this very enlightening article. I bought some shares of it and haven’t sold it yet. Just want to ask if what do you think could happen with NOW since it was mentioned that DICT will reschedule it in July. And I’m wondering if there’s any time frame for them to disclose their foreign investors if there’s any. thanx much in advance.

    • The Investing Engineer PH says:

      First off, I’m not Ed haha.

      I’m really not sure kasi bidding yan eh. If matalo sila, if manalo… May corresponding sentiment yan depende sa resulta. Hindi din madetermine fair value niya kasi maraming noise surrounding its future prospects. Pero if based sa current equity and earnings nila, super overvalued na siya. Unattractive ‘investment’ na siya.

      Sa mga speculative play na ganyan, ang mahalaga you get out at a gain. Sentiment and future developments ang binibili sa kanya ngayon. Hindi yung cash flow niya.

  • ronnie c says:

    How about VLL Sir?

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