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. It was hard enough just making the charts, maybe next time I'll view some chart making and analysis software. And now, for our NOW discussion.

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.

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

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.

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.

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.

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.