BroadSoft's Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Internet-based telephony specialist BroadSoft (Nasdaq: BSFT  ) got a crystal clear signal on Monday, jumping as much as 10.8% on low-volume trading action.

So what: Northland Securities just started coverage of this stock with a buy rating and a $38 price target. The analyst action nearly became a self-fulfilling prophecy as shares topped out at $37.21 in intraday action.

Now what: VoIP experts commonly trade in nosebleed territory: BroadSoft, 8x8 (Nasdaq: EGHT  ) , and Vonage (NYSE: VG  ) are all priced at more than 30 times trailing earnings today. The technology holds tons of promise, but margins are sliver-thin and competition is fierce. BroadSoft shares have now more than quadrupled over the past 13 months, and I have to wonder whether these prices can be sustainable.

Interested in more info about BroadSoft? Add it to My Watchlist.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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  • Report this Comment On November 29, 2011, at 11:02 AM, dgroves0 wrote:

    """"Vonage (NYS: VG) are all priced at more than 30 times trailing earnings today.""""


    The last three earnings reports give VONAGE $.27 GAAP earnings.

    $2.20/$.27 = 8.1 GAAP PE for nine months

    Vonage Holdings Corp. Reports Third Quarter 2011 Results

    "" net income of $24 million or $0.11 per share excluding adjustments""

    ""GAAP net income was $16 million or $0.07 per share.""

    Vonage Holdings Corp. Reports Second Quarter 2011 Results

    ""Net income increased to a record high $22 million or $0.10 per share""

    Vonage Holdings Corp. Reports First Quarter 2011 Results

    ""Vonage generated record high net income of $21 million or $0.10 per share""

    There should be no major write downs 4th quarter, so when we see that $.11 as GAAP earnings the ttm GAAP earnings will be $.38

    If PPS is still $2.20, Vonage will be selling at a 5.7 PE

    As per Yahoo and my numbers Vonage is currently selling at 31.8 PE until the 2011 4th quarter numbers are in and the PE drops to a GAAP 5.7 PE

    That "razor thin" profit margin at Vonage, should be moving up from under 2% to 12-13%

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