Redline Communications is well worth the time to research.
Redline Communications (TSX: T.RDL, Stock Forum, 47 cents)
www.redlinecommunications.com
52-week high $6.49, low 31 cents
Redline is one of the few microcap techs we're bottom fishing right now. The company has approximately $15 million in net cash (71 cents/share) and $13 million in inventory (62 cents/share) – yet the stock continues to trade at a large discount to the cash alone.It continues to incur moderate operating losses, but with over $30 million in annual revenue it’s hard to imagine the market would not only value the inventory and business itself as worthless, but grossly discount the cash. Near this low, it's a company well worth the time to research.
We have only looked at a couple techs in 2008 but have had tremendous success with bottom fishing cash-rich stocks (when they are near or below cash value). Both Western Prospector (TSX: V.WNP, Stock Forum) and JumpTV (TSX: T.JTV, Stock Forum) were bought out this year for 100% gains, and Netlist (NASDAQ: NLST, Stock Forum), one of our other techs, is quietly up 50% in the past few months. Rarely have we ever missed on these situations – if you have the patience.
From a business perspective, Redline provides industry-leading support of voice, video, and data traffic through long-range, high-capacity wireless broadband networks. It is the WiMAX industry leader, with over 166 deployments worldwide. Redline was the first equipment vendor to have its products WiMAX forum certified as well as FCC certified for the 3.65-gigahertz spectrum in the United States. The following report was released last week concerning WiMAX.
The company's burn rate is an issue but is manageable. Heading into July it was trading $1.60 before markets stumbled and it released financial forecasts for the second half of the year. This is where it gets bizarre.
Q2 revenue is forecast at $9 million; a $6 million drop from earlier estimates but still about $20 million for the second half of 2008. Even if this company generated $20 million in revenue all year, the market gives it zero value for the business model (again)!Unless it burned through all its cash at ridiculous rates for the next six months, it would still only be down to current cash values. The business model is once again being deemed worthless by the market.
A report released last week in Europe is forecasting significant growth for WiMAX. In particular, they believe Central and Eastern Europe, the Middle East, Africa, and Brazil to lead in WiMAX uptake, with the number of WiMAX subscribers in each of these regions to double or triple each year through to 2011. They also expected to see significant growth opportunities in India. These regions with huge populations but poor technology infrastructure are very large markets. There is a lack of broadband services and even basic voice services – a significant driver for WiMAX adoption.
Digest their website so you can understand their business model.
Disclosure: Danny Deadlock owns 25,000 shares of Redline Communications.
