ZHNE Trigger at 1.30 (link back for charts)
A repeat of that performance is unlikely, but it's not unreasonable to continue thinking that the shares are poised to triple from here.
As we enter 2012, ZHNE is valued at just over $30M. However, its book value is nearly $40M and the company has guided to EBIDTA profitability for 2012. Both factors will cushion investors from significant losses. Meanwhile, its valuation makes the company a prime candidate for share-price appreciation and/or acquisition. To go along with its $40M balance sheet, ZHNE generates over $120M in revenue and invests over $20M into R&D annually. When combined with EBITDA profitability, both of these measures beg for a minimum valuation of $2 (0.5x revenue and 3x R&D).
All the company needs is a catalyst to spark investor interest. Such catalysts should be in ample supply this year. 2011 was marred by a fiber cable shortage, which put numerous projects on hold. The year was also characterized by delays in U.S. Government Broadband Stimulus funding, which also delayed broadband deployments.
Going into 2012, a simple Google search shows that both issues are now reversing. As such, a significant headwind should become a major tailwind. Management confirmed this view on its earning conference call.
In addition to the above, the FCC's Universal Service Fund (USF) promises to be the greatest catalyst of all. The USF has traditionally focused on making sure all Americans have access to telephone service. However, its mandate was recently shifted to enabling Broadband access.
This mandate was unanimously approved by the FCC on October 30, and will funnel $4.5 billion toward the development of rural Broadband access annually through 2017 ($22.5 billion total). This compares with the Broadband Stimulus program, which totals a "mere" $7 billion. The program is expected to kick off in 2012 and will run in parallel to the U.S. Broadband Stimulus program.
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