What: Shares of Sonus Networks (NASDAQ:RBBN) were setting up for a weak performance in July, sliding 11% lower for no particular reason, then the maker of session border controllers for business-grade networked telephony systems reported second-quarter results on July 29, and the mood changed in a hurry. All told, Sonus shares rose 16.6% in July, according to data from S&P Capital IQ.
So what: The stock jumped 12% on July 29, following a surprisingly solid second-quarter report. Sales fell 28% year over year to $54.7 million, but still beat Wall Street's consensus target at $54.2 million. On the bottom line, the year-ago period's $0.27 loss per share shrank to an adjusted loss of $0.10 per share. Here, analysts were looking for a larger $0.16 loss per share.
That's not the whole story, of course. Sonus shares saw an even higher 17% gain on July 30, when analysts had absorbed the freshly reported results and started revising their ratings and target prices on the stock.
Now what: Sonus investors can indeed celebrate a strong July, but the picture changes radically if you zoom out a bit. Here's how the stock has performed so far in 2015:
That's a 61% drop year to date, including July's strong showing.
Sonus shares plunged 30% in a single day last March, when several large customers took their long-expected orders elsewhere. The company immediately kicked off a large cost-savings program, lowered guidance for the full fiscal year, and essentially became a whole new beast.
Having hit the reset button on a failing business model, Sonus must now show that the new structure and product portfolio can deliver the growth its old assets and projects couldn't. Finding the right valuation of this stock is almost impossible at the moment. Earnings and cash flows are negative, sales are shrinking, and Sonus has lost 43% of its book value since the start of 2013.
To its credit, Sonus has $84 million in cash reserves and no debt to worry about. Management also hopes to deliver breakeven cash flows for fiscal year 2015, which means delivering about $14 million of positive cash from operations in the second half. Pull that off, and we can start talking about the company's future.
Until then, I'm not interested. Despite 18 years of operating history, the company is behaving like an unpredictable start-up business today. The stock has followed suit and looks too risky even for me.