Sangoma Technologies

I recently took a position in Sangoma Technologies (STC.v). Here is a very brief explanation of my thoughts on the company.

I have followed Sangoma ever since it was mentioned by Nate at Oddball Stocks here. It fell onto mine (and his) radar due to it being cheap, see below.

STC_valuation

The plunge in valuation was not without merit.

STC_operating_perf

You can see that the company really started struggling in 2011. Margins and ROC went one way while the capital invested in the company went the other. It looks pretty ugly.

I can’t really speak to the products themselves and their spot in the marketplace. What I am hoping for is enough margin of safety that I don’t need to know much.

Margin of Safety – Asset Value

STC_NCAV

*here is what I used to calculate liquidation value

STC_liquidation

You can see that the NCAV hasn’t changed much. That’s because most of it has been cash rolling into inventory. So you need to get comfortable with that if you are looking at Sangoma. But there is $0.12 in net cash on the balance sheet. When the CEO took over in 2010, he made it clear he is focusing his effort on growing the company and said that many costs will be incurred now while revenues recognized later.

Risks

As Saj Karsan points out in this post, there are risks involved. He is 100% correct in identifying them. They have been there for at least 2 years and for at least 2 years business owners have been disappointed.

Why Am I Buying?

I keep hearing a sentence in my head from The Manual of Ideas, “Acceptance of discomfort can be rewarding in investing…”. Many net-nets aren’t liquidated, but are turned-around (even temporarily). Annual results should be out very soon and a recent news release has pointed to growing revenue. Hopefully we will be free from write-downs, or at least only a small write-down if there is one.

Lastly, as with any investment position sizing should be taken into consideration. This company would likely fit into a basket of asset based valuation stocks as a portion of your portfolio. If Sangoma does turn out to be a winner, don’t get greedy. This is not a wonderful company at a wonderful price.

Dean

Disclosure: Long STC.v

3 Comments

Filed under Company Analysis

3 responses to “Sangoma Technologies

  1. Pingback: Finding the right Net-Net | Petty Cash

  2. Pingback: Sangoma Technologies Corp (STC.v) – Update | Petty Cash

  3. Pingback: Sangoma Technologies Corp (STC.v) – Update | Petty Cash

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s