Please ensure Javascript is enabled for purposes of website accessibility

Why Sonus Networks, Inc. Jumped on Tuesday

By Anders Bylund – Feb 16, 2016 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The voice networking specialist's business results have bounced back strongly from a terrible 2015. The stock still has a long way to go.

Source: Sonus.

What: Shares of Sonus Networks (RBBN -4.72%) soared more than 20% higher on Tuesday morning, at one point reaching as high as 26.5%. The maker of telephony networking equipment for large telecom and cable systems reported fourth-quarter results in the early morning hours, easily surpassing Wall Street's estimates.

So what: In the fourth quarter, Sonus' revenues fell 0.7% year over year to land at $76.3 million. Adjusted earnings rose 53% higher, stopping at $0.23 per diluted share.

Analysts would have settled for earnings of $0.20 per share on sales near $73.9 million. These estimates were in line with management's official guidance targets.

Sonus also set fresh guidance targets for the 2016 fiscal year at roughly $260 million in top-line revenues and adjusted earnings near $0.24 per share. Both of these goals sit shoulder to shoulder with Wall Street's consensus estimates.

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.

Now what: Even after this sudden jump, Sonus shares are still trading some 62% below their year-ago prices. You may recall the company slashing first-quarter estimates and reducing full-year targets in March 2015, sending Sonus shares right through the floorboards.

At the time, CEO Ray Dolan promised to deliver positive cash flows for the full year anyhow, thanks to careful cost-cutting moves. Further, Dolan later pointed out that the revenue shortfalls came from four major customers reducing their Sonus orders to "a fraction of what we had forecast."

So here we are at the end of the 2015 fiscal year, and Sonus did indeed come through with positive free cash flows for the full year. The company had no customers representing more than 10% of this quarter's total sales, relying instead on "a high volume of orders from a diverse set of customers," in Dolan's words.

The company's quarterly sales fell off a cliff last year but have now climbed right back to the diving board again. Here's how the quarterly sales results had stacked up leading into this report, which rose right back to the $76 million level:

SONS Revenue (Quarterly) Chart

SONS Revenue (Quarterly) data by YCharts

The company has done a lot of the hard work required to rebuild a cracked revenue foundation, and can now focus on delivering future growth instead. The new, more cost-effective operating structure will stay in place while Sonus looks to add higher sales volumes on top.

That looks like a solid business plan, especially since the company now has recent proof of managing through a difficult period. Meanwhile, investors remain nervous and stock prices are still low. Sonus' P/E ratio now stands at 29 times forward earnings, but the bottom line is primed for improvements and the stock also trades just above book value.

I've made money on Sonus in the past, and the stock is starting to look attractive again. At the very least, Sonus deserves a place in your CAPS portfolio, where you can keep track of the stock without risking any real money.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ribbon Communications Inc. Stock Quote
Ribbon Communications Inc.
$2.22 (-4.72%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.