NOW Corporation Stock Review: Long-term Or Tsupit?
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.
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
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.
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.
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.
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.
The Book Value per Share for the past 7 years gives me a clearer picture of what the company is worth as illustrated below.
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.
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.