Once upon a time (near the end of the Internet Bubble), telecommunications equipment stocks were the bee's knees -- the most popular kids on the block. Today, however, many of these firms are just pale reflections of their former selves. One of yesteryear's favorites, for example, JDS Uniphase (NASDAQ:VIAV), once boasted a per-share price (split-adjusted) in excess of $1,050. Today, it costs a mere $13.28 -- down 98.75% from its peak.
And it's still not a buy. Here's why, in three short points:
JDS Uniphase stock is losing ground
When you stack up JDS Uniphase stock up against two of its rivals -- Cisco Systems (NASDAQ:CSCO) and Finisar (NASDAQ:FNSR), some interesting dynamics become apparent. First and foremost, of the three, JDS Uniphase stock is the only one that has no P/E ratio ... because it has no "E" -- earnings -- to weigh its "P" -- price -- against.
Sure, Finisar is no bargain, either, at a price-to-earnings ratio of 170. But at least it has a positive P/E. Of the three, only Cisco has anything approaching an attractive number to its name: a P/E of 11.7.
Lay the three stocks side by side, and compare how their "free cash flow yields" perform.
As you can see, Cisco is the steady-as-she-goes stock here, generating anywhere from 5% to 10% of its own market cap in real cash profits -- free cash flow -- year in and year out. Finisar, once a laggard in this race, has been steadily improving its performance. Last year, it passed JDS, and is now is second place.
Which leaves JDS Uniphase stock in last place.
JDS Uniphase stock is flatlined
If JDS were only down temporarily, but improving, there might be hope that the stock could bounce back. But, as you can see in the chart above, JDS has struggled to produce its trickle of free cash flow for more than three years running -- while its rivals are either holding their ground, building up their cash war chests (Cisco), or even improving (Finisar).
Of course, that's only to be expected, given how anemic JDS's sales have been lately:
JDS Uniphase is going nowhere
With sales growth stuck in low gear, and free cash flow weak, the future doesn't look bright for JDS. And yet, hope springs eternal for owners of JDS Uniphase stock, and the analysts who recommend buying it. Consider how the stock's boosters on Wall Street predict earnings will grow for these three companies over the next five years:
But I ask you -- is this likely? After several years of underperforming its rivals, watching its business atrophy, and its market share sink, how likely is it, really, that JDS Uniphase stock will suddenly turn around and go on a (relative) tear, growing its earnings faster than either Finisar or Cisco?
It could happen. But, ordinarily, before an earnings perk-up such as the analysts are predicting, you'd expect to see some clue of what's coming down the pike. Strong sales performance, perhaps, lending pricing power with which to grow earnings. Strong cash production, which filters into earnings as the GAAP accounting rules stretch those earnings out, and count them over time.
We see neither of these indicia of an earnings revival at JDS Uniphase, however. And that's why I'm convinced that, going forward, JDS Uniphase stock is going nowhere.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.