In what some will see as a somewhat surreal event, metro fiber specialist abvt announced yesterday that they will effect a two-for-one stock split on August 20 in the form of a 100% stock dividend. They just got listed on the NYSE back in May after an epic crawl out of the MFN bankruptcy back in the last bubble. The company’s stock has been trading in the neighborhood of $80 despite the economic turbulence, so they certainly have the room to pull it off. The market has welcomed them back, and hence the split. But having this particular company doing it while the rest of the sector continues to suffer is particularly ironic. Abovenet also announced that the board of directors has announced the restatement and extension of their shareholder rights plan, a form of poison pill, which was set to expire this week.
Now intellectually, stock splits don’t matter to me. If an applie pie has eight pieces where it used to have four, it is nevertheless still a pie and its filling still has the same number of apples. But emotionally it is important. Most of the stock splits in the sector in the past year have been of the ‘reverse’ variety, meaning that the stock price had fallen so low that institutional holders might not want to hold a penny stock and there was also a danger of being delisted. While many people mistake cause for effect, having a reverse stock split is not a time of celebration.
But Abovenet’s split was of the other kind, one representing progress, increased investor interest, and burgeoning valuations. In other words, it’s one we haven’t seen much of since the last bubble popped. How can they pull off a stock split while valuations remain so low across the entire technology sector? It’s the quality of the fundamentals that underlie the metro fiber business now. They are driving cash flow, growth, and improving margins despite the worst recession in many decades. We haven’t seen more of them mainly because there are so few public pure metro fiber companies, and those we do have (TW Telecom (NASDAQ:TWTC, news, filings), ftgx) are still working off the splits of the previous bubble amidst similarly improving fundamentals.
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