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Why Bandwidth Stock Fell 10.5% Last Month

By Keith Noonan - Jun 6, 2021 at 3:27PM

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Bandwidth stock now trades down roughly 40% from the lifetime high it hit last year. Is it time to buy?

What happened

Shares of Bandwidth (BAND -2.70%) dipped 10.5% in May, according to data from S&P Global Market Intelligence. The communications platform as a service (CPaaS) stock lost ground amid a broader pullback for the growth-dependent cloud services space. 

BAND Chart

BAND data by YCharts

Bandwidth published first-quarter earnings results on May 5, delivering sales and earnings that came in ahead of the market's expectations. However, despite the top- and bottom-line beats, the stock ended the month down by double digits because of mixed guidance and concerns about weaker momentum in the broader CPaaS space. 

A person using a video chat service.

Image source: Getty Images.

So what

Bandwidth's first-quarter sales surged 66% year over year to hit $113.5 million, with revenue for its CPaaS segment climbing 69% to hit $100.1 million. The company posted a dollar-based net retention rate of 125% in the quarter, reflecting the fact that previously existing customers significantly increased their spending. Non-GAAP (adjusted) earnings per share for the quarter came in at $0.31, up from $0.04 per share in the prior-year period. 

Bandwidth's text-and-voice CPaaS technologies help facilitate streaming video communications and other services, and the company saw significant tailwinds related to the coronavirus pandemic. Work-from-home and shelter-in-place conditions prompted surging demand, but the company could face challenging growth comparisons in the near term as workers in many of its core geographic markets head back to the office. 

Management is guiding for second-quarter sales to come in between $116 million and $117 million. Adjusted earnings for the period are projected to be between $0.08 and $0.10 based on estimates for 26.8 million shares outstanding. That compares with adjusted earnings of $0.13 per share on sales of $76.8 million in the prior-year quarter.

Now what

Bandwidth stock has continued to move lower early in June. The company's share price is down 3% in the month so far. 

BAND Chart

BAND data by YCharts

Bandwidth has a market capitalization of roughly $2.9 billion. For the full-year period, the company expects sales to come in between $473.1 million and $476.1 million. Adjusted earnings are expected to be between $0.47 per share and $0.55 per share. Based on those estimates, the company is valued at approximately 6.1 times this year's expected sales and 58.5 times this year's expected earnings. 

Cloud communications stocks have lost momentum as many investors have prioritized reopening plays. However, while coronavirus-related pressures have eased in many territories, the long-term outlook growth outlook for the CPaaS is still promising -- and Bandwidth stock has big upside at current prices. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Bandwidth. The Motley Fool has a disclosure policy.

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