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Ribbon Communications Inc: JP Morgan Loves This 5G Stock

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RBBN StockRBBN Stock Could Easily Double

With the Nasdaq falling into correction territory on March 4, we’re slowly beginning to see better entry points for technology stocks. The worst may not be over, but it could be time to nibble on certain positions.

On that note, I like the risk-reward scenario for Ribbon Communications Inc (NASDAQ:RBBN), a global developer of next-generation software solutions for telecommunications, wireless, and cable service providers.

Ribbon Communications’ solutions help companies modernize, secure, and optimize their communications networks. The company seems well suited to benefit from the focus on building the 5G infrastructure in the U.S. and globally.

Ribbon Communications stock traded as low as $1.95 during the March 2020 sell-off before staging an impressive rally to a range high of $11.25 on February 16, 2021.

RBBN stock has since retreated by 29% to levels where I see a compelling opportunity. The share price is hovering at the 50-day moving average. Watch if the stock can hold and bounce.

Ribbon Communications stock’s record high was $21.25 in July 2014, so clearly the upside potential is huge.

Chart courtesy of StockCharts.com

Strong Fundamentals & Attractive Valuation

Ribbon Communications Inc recorded revenue growth in three of the last four years, including to a record $843.8 million in 2020. The compound annual growth rate (CAGR) from 2016 to 2020 was an impressive 36.5%.

Fiscal Year Revenues (Millions) Growth
2016 $252.6 N/A
2017 $329.9 30.6%
2018 $577.9 75.2%
2019 $563.1 -2.6%
2020 $843.8 49.9%

(Source: “Ribbon Communications Inc.” MarketWatch, last accessed March 8, 2021.)

Ribbon Communications is expected to normalize its revenue growth rate to 10.3%, to $930.5 million, this year and to 4.8%, to $975.1 million, in 2022. (Source: “Ribbon Communications Inc. (RBBN),” Yahoo! Finance, last accessed March 8, 2021.)

Ribbon Communications managed to deliver positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the last five years. The annual EBITDA growth rates were stellar and easily above the revenue growth rate during the time frame (except in 2017).

Fiscal Year EBITDA (Millions) Growth
2016 $6.1 N/A
2017 $2.3 -61.8%
2018 $29.5 1,175%
2019 $65.4 121.7%
2020 $113.2 73.1%

(Source: MarketWatch, op. cit.)

Ribbon Communications Inc turned in generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits in 2020 after four years of losses.

Fiscal Year GAAP Diluted EPS Growth
2016 -$0.28 N/A
2017 -$0.60 -114.3%
2018 -$0.74 -23.2%
2019 -$1.19 -60.4%
2020 $0.61 151.7%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Ribbon Communications was profitable in 2020, reporting an adjusted $0.43 per diluted share. This is expected to rise to $0.50 in 2021 and $0.57 in 2022. (Source: Yahoo! Finance, op. cit.)

Ribbon Communications Inc also produced positive free cash flow in four of the last five years, including a record $74.9 million in 2020.

Fiscal Year Free Cash Flow (Millions) Growth
2016 $14.6 N/A
2017 $4.1 -72.0%
2018 -$17.5 -528.9%
2019 $44.9 356.3%
2020 $74.9 66.8%

(Source: MarketWatch, op. cit.)

Analyst Take

Institutional ownership of Ribbon Communications stock is decent, with about 167 institutions holding 66% of the outstanding shares. JP Morgan Chase & Co. (NYSE:JPM) is the top institutional investor in RBBN stock, with a 34.6% stake. (Source: Yahoo! Finance, op. cit.)

Ribbon Communications Inc also has decent insider buying. Over the last six months, insiders bought 182,611 shares and sold 8,304 shares. (Source: Yahoo! Finance, op. cit.)

At its current price, I see an opportunity for investors to accumulate Ribbon Communications stock. It trades at an attractive 14.2 times its 2022 consensus EPS estimate and 1.2 times sales. The reasonable valuation provides some downside cushion for RBBN stock investors.

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Source: Ribbon Communications Inc: JP Morgan Loves This 5G Stock

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