There is an article on Seeking Alpha today Three Stocks Selling Below Cash With Little Debt of which one is telecom equipment provider Ciena (NASDAQ:CIEN, news, filings). The argument goes that Ciena’s pile of cash and marketable securities (over $1B) is substantially higher than its current marketcap, and since the company is profitable and has a P/E of 7, they’re cheap cheap cheap.
And they are, but of course, they aren’t the only ones. If I had a nickel for every undervalued company in this sector, I could buy probably one of them. That said, it should be noted that Ciena’s P/E may be 7 now, but everyone who follows them at all knows that number will be rising rapidly soon. You see, we last heard from Ciena in early September. Their Q4 guidance (yes they have an odd calendar) was very weak, just $190-210M down 20-25% sequentially, on which their profits will surely be down substantially. And that was from early September, before Lehman went down and the pillars of the economy shuddered, before the capital markets tanked and everyone started expecting telecom capex to pull back.
Now it could be that Ciena was prescient, it could be that their revenue warning was one we didn’t heed prior to the collapse and that it’s all baked in. But the market is clearly worried that another shoe is about to drop, because Ciena reports Q4 earnings next Wednesday. Their customers are highly concentrated and it only takes one sneeze to make the pain a lot worse. I don’t think it will be that bad. After all, we heard from those customers – landlines may be ugly but bandwidth on the backbone and in the metro everything still seems fine. The company’s cash position remains awesome and their maturites remain many years off, nobody can seriously doubt they will survive this storm. It’s just that almost nobody can see past the end of their nose right now, so it doesn’t seem to matter.
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