THESTREET.COM Analysis of Ambient:
(Garden - don't believe anything you read here! Keep buying the stock as it will surely hit $50 per share soon!)
(JYO - of course!)
RECOMMENDATION
We rate AMBIENT CORP (ABTG) a SELL. This is based on some significant below-par investment measures,
which should drive this stock to significantly underperform the majority of stocks that we rate. Among the
areas we feel are negative, one of the most important has been generally deteriorating net income.
HIGHLIGHTS
The company, on the basis of change in net income from the same quarter one year ago, has significantly
underperformed when compared to that of the S&P 500 and the Diversified Telecommunication Services
industry. The net income has significantly decreased by 114.1% when compared to the same quarter one year
ago, falling from -$2.50 million to -$5.36 million.
ABTG, with its very weak revenue results, has greatly underperformed against the industry average of 2.4%.
Since the same quarter one year prior, revenues plummeted by 96.0%. Weakness in the company's revenue
seems to not be hurting the bottom line, shown by stable earnings per share.
AMBIENT CORP reported flat earnings per share in the most recent quarter. This company has not
demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings
for the coming year. During the past fiscal year, AMBIENT CORP continued to lose money by earning -$0.04
versus -$0.06 in the prior year.
Compared to its closing price of one year ago, ABTG's share price has jumped by 852.17%, exceeding the
performance of the broader market during that same time frame. Regarding the future course of this stock,
we feel that the risks involved in investing in ABTG do not compensate for any future upside potential, despite
the fact that it has seen nice gains over the past 12 months.
Net operating cash flow has increased to -$2.31 million or 23.93% when compared to the same quarter last
year. The firm also exceeded the industry average cash flow growth rate of 8.38%.
INDUSTRY ANALYSIS
The US diversified telecommunications services industry provides communications and high-density data
transmission through high bandwidth/fiber-optic cable networks. The industry is classified into two
sub-categories, alternative carriers and integrated telecommunication services. There are three parallel
markets, terrestrial networks, cellular networks, and satellite networks, which include major players such as
AT&T, Verizon Communications, and Qwest Communications.
Industry output was estimated at $300 billion for FY07, contributing around 2.2% to total GDP. Wired
telecommunication services posted 2007 revenue of $200 billion and cable operators generated $60 billion of
revenue. Local service carriers reported annual revenue of $130 billion and long distance networks registered
$70 billion of revenue.
The industry is mature, cyclical, capital intensive, and undergoing consolidation and globalization. The recent
M&A trend, ongoing regulatory liberalization, and privatization have fuelled competition in local telephone
services markets and expansion into domestic and cross-border markets. The industry has high entry barriers
due to the dominance of well-established players, strong brand identities, high levels of automation, and
distribution challenges.
Growth is driven by technological advances and demand for integrated high bandwidth data transmission.
Most companies are seeking new market segments, such as mobile communications, digital data
transmission, and value added services. The changing pace of technology implementation and convergence
of cable network technologies through bundling have redefined the competitive landscape. However, the
recent launch of cable telephony, VoIP, and improved wireless and cellular technologies pose a threat to
traditional wired telecommunication services.
The US Federal Government, through the Communications Act of 1934, established the Federal
Communications Commission to regulate and retain jurisdiction over use of the radio spectrum, interstate
telecommunications, and international communication that originates or terminates in the US. Deregulation
has occurred since the disintegration of AT&T in 1982 and rendered the market more competitive. The
industry is regulated by the US Telecommunications Act of 1996 and 2005, which aims to abolish cross-market
barriers and prohibit dominant players from operating within one communications industry.
Industry outlook is weak due to a significant drop in subscriber additions, shifting consumer preferences, and
a shift towards wireless connections. The government’s $7.20 billion stimulus package provides $4.70 billion
to establish a Broadband Technology Opportunities Program at NTIA for wireline, wireless, and cable
companies, and provides $2.50 billion for broadband grant, loan, and loan guarantee programs at to be used
by rural wireline telecoms and satellite providers. Service upgrades, which are supported by advanced
high-end 3G networks, introduction of low-cost integrated IP voice and data networks, and the deregulation
of the industry, are likely to revive the industry from its present downturn.
FINANCIAL ANALYSIS
AMBIENT CORP's gross profit margin for the second quarter of its fiscal year 2009 has significantly
decreased when compared to the same period a year ago. Sales and net income fell significantly,
underperforming compared to the average company in its industry. AMBIENT CORP is extremely liquid.
Currently, the Quick Ratio is 2.29 which clearly shows the ability to cover any short-term cash needs. The
company's liquidity has increased from the same period last year, indicating improving cash flow.
At the same time, stockholders' equity ("net worth") has significantly decreased by 133.40% from the same
quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face
financial difficulties in the near future.
VALUATION
SELL. This stock’s P/E ratio is negative, making its value useless in the assessment of premium or discount
valuation, only displaying that the company has negative earnings per share. Along with this, the
price-to-book ratio is also meaningless due to a negative book value for the company, making any
comparisons useless. The price-to-sales ratio is well above both the S&P 500 average and the industry
average, indicating a premium.
AI
