Dot-bomb disaster comes to mind when seeing a name like UTStarcom (NASDAQ:UTSI). And with shrinking profit margins, accounting concerns, and increased competition from the likes of Nortel Networks (NYSE:NT) and Lucent Technologies (NYSE:LU), it's hard to have much more confidence in the company's prospects. Is this another garbage telecom? UTStarcom's CEO and chief financial officer don't believe so, and they are buying chunks of shares to back it up.

There is perhaps no greater vote of confidence than to see the top dogs putting their money where their mouths are. CEO Hong Lu recently bought 34,000 shares, making this his second insider purchase since founding the company. His previous insider purchase (22,500 shares) was in September 2001, when the stock was priced at comparable levels. Mike Sophie, the CFO since 1999, recently purchased 32,000 shares -- his first insider purchase. On top of that, UTStarcom has a stock repurchase plan in effect to buy back 5 million shares.

When the company and insiders are buying big blocks of shares, it's time to take notice. At around $17, the stock certainly looks cheap. UTStarcom has $485 million in cash and $402.5 million in long-term debt. And with an enterprise value of $1.9 billion, the company is reasonably valued at 14 times its run rate of structural free cash flow (SFCF) of $133 million (including a stock option benefit deduction). Analysts are expecting earnings to double in 2005, and if this holds true, UTStarcom may be significantly undervalued at these levels.

Between upgrades and downgrades, however, analysts have been all over the map with this company. Given this, it's difficult to put too much confidence in their projections. That said, with customers like China Telecom (NYSE:CHA), UTStarcom has a significant foothold in the wireless and wire line industry in China. Its competitive position should reap significant benefits as the Chinese telecom industry continues to develop.

With a name like UTStarcom, it may be easy to have doubts. But if insiders have enough confidence in the company's position, product, and prospects to buy at this level, investors should keep this stock high on the watch list.

Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.