JCOM: Forbes' "Stock of the Week"
Michael Markowski, editor of The OPS Newsletter and StockDiagnostics, recommends buying shares of J2 Global Communications (JCOM), the Los Angeles-based provider of integrated fax, e-mail, and voice messaging systems. JCOM is a fallen momentum stock -- down 54% from its October 9 high of $47.91 -- but still up 83% in the last 12 months, trading as low as $10.70 last March. Revenues of $71 million in 2003 were up 45%, and net income grew 150% to $35.8 million. JCOM's Friday close of $21.96 is 15.6 times 2003 earnings of $1.40 per share, and seven times sales.
Markowski's method of stock analysis is to compare a company's earnings per share with what he calls "operational cash flow per share" (OPS), calculated by dividing a company's cash flow from operations by the number of shares outstanding. EPS includes a number of non-cash items such as receivables, proceeds from one-time sales of assets, as well as depreciation of goodwill and other intangibles. OPS is a measure of the cash a business generates from its core operations. JCOM has grown its operational cash flow every quarter except one since cash flow turned positive in the third quarter of 2001, and last year generated $28.9 million of cash on sales of $71 million (40%).
On December 1, 2003, Forbes Wireless Stock Watch editor Nikhil Hutheesing recommended LCC International (LCCI) as Stock of the Week when it traded for $4.90. LCCI shares reached as high as $9.81 on January 21 -- 100% higher than Hutheesing's recommended buy price. For the complete Wireless Buy List, please click here.
Markowski gives JCOM shares his highest OPS ranking of 1 (the lowest is 8). Given the stability of the business at growing its cash flow, he believes the shares are undervalued at current levels. The company has virtually no debt and has no problem paying its bills with a current ratio of 7.6. Analysts are forecasting 40% revenue growth for 2004 and earnings per share of $1.09 -- down from estimates three months ago of $1.19.
One thing to be aware of: both institutions and insiders were big sellers of JCOM shares in the past six months at prices slightly above current market price. Markowski believes that momentum investors will find JCOM again, as long as the company continues to generate increasing amounts of cash from its operations.
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