When considering any stock for your portfolio, don't be swayed just by the positives. Examine its pros and cons, and decide whether its possible upsides outweigh its risks. Let's take a look at Sify Technologies
Two reasons you might favor Sify are its business and its location. Sify is a provider of connectivity, hosting, and other IT-related services -- dynamic businesses that are changing and growing rapidly and for which investors in Level 3 and similar companies have high expectations. Better still, it operates chiefly in India, a developing economy featuring 1.2 billion people! As more and more people move up out of lower economic classes, they'll be more able to plug into our great global telecommunication infrastructure.
That's not all you get with Sify -- it also sports a Sify Movies website, which has advanced from being India's seventh-most-visited site for news and movies to its third. (Remember that India is home to the bustling Bollywood film industry.)
Sify is also not limiting itself just to India. It's expanding internationally, via a deal with Saudi Telecom, for example. Diversification is good, as it can bolster the company should India experience a big or small setback.
One reason to sell, or avoid, the stock is its volatility. It has delivered many heart-stopping annual performances, such as gains of 78% in 2011, 81% in 2005, 119% in 2004, and 31% in 2010. That's darn appealing, until you notice 2006, 2007, and 2008 featured three drops in a row, of 11%, 41%, and...71%. If you don't think you could stomach a 71% drop very easily, think twice about this stock. Not surprisingly, the stock's beta, which measures its volatility against the market, is nearly 4.0 (a 1.0 would have it moving roughly in tandem with the market).
Another reason to cross to the other side of the street when you see Sify coming is its profitability: It doesn't have any, at least not yet. That's just the way things are with many small companies. Sometimes it can take years to ramp up to a scale that permits good returns on investments. But other times, companies run out of money or strategies before they become sustainable. To be fair, though, Sify is somewhat close to being profitable, and it actually ended its fiscal 2010 in the black.
Then there's dilution. The number of Sify's shares of stock has reportedly more than tripled over the past two years. It can be effective for a company to raise much-needed cash by issuing more shares of stock, but each new share dilutes the stake in the company held by existing shares. Worse still was that the shares were heavily discounted and issued to those connected to company insiders. In other words, it looks like these new shares may have benefited their recipients more than the company.
If neither the buying nor selling arguments have moved you enough to action, consider just holding off on acting on this stock. You might want to wait until it's profitable. You might want to see the share count not grow too much more. You might wait for greater expansion abroad.
As for me, I'm not jumping into Sify, as there seems to be plenty of other more attractive candidates for my portfolio.
If you're drawn to India, though, you have other options -- Sify isn't the only fish in the sea. Also not-quite-profitable is Rediff.com
Better still, consider more established Indian companies that are very profitable. Automaker Tata Motors
While Sify Technologies certainly has potential, we think we've found a better opportunity for investors. The Motley Fool recently compiled a research report detailing its Top Stock For 2012. Better yet, we made it absolutely free for our readers, so click here to access your free copy today.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter @SelenaMaranjian, holds no position in any company mentioned. Click here to see her holdings and a short bio. 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.