Entropic Communications (ENTR)
is changing the way that digital video and other multimedia content is brought into and delivered throughout a person’s home. The company’s products enable individuals to seamlessly access and share digital video and other multimedia content over the existing coaxial cables in their homes.
In addition, those products enable telecommunications carriers, cable operators, and direct broadcast satellite (DBS) service providers, collectively referred to as service providers, to offer the following services to their subscribers:
• Multi-room digital video recording.
• Computer-to-television content sharing.
• Streaming of downloaded movies stored on a personal computer to a television.
Those same products enable individuals to record and share digital videos simultaneously in every room of their home; merge data and video-centric networks throughout their home; access and simultaneously play online games from various locations in the home; and distribute movies, music, and downloaded videos to every room in the home.
Entopic’s home networking applications are currently being offered by Comcast, Cox Communications, DIRECTV, Time Warner Cable, and Verizon, as well as several smaller service providers.
From an investment perspective, the company’s stock looks like it might be a big winner over the next 12 to 18 months. After growing its revenues from a mere $3.7 million during 2005 to $210 million for the year ended Dec. 31, 2010, Entropic Communications is off to a good start during the current year. For example, the company grew its net earnings to 13 cents per diluted share during the quarter ended March 31, 2011, from 2 cents per diluted share during the same quarter a year ago, on a 91 percent increase in its revenues.
On April 26, the company announced that it expects to continue to grow its revenues and earnings at a fast pace during the quarter ending June 30. Specifically, the company stated that it expects its adjusted earnings per diluted share, which excludes non-cash employee compensation charges and certain non-recurring expenses, to rise to 18 cents during the quarter ending June 30, 2011, from approximately 4 cents per diluted share during the same quarter a year ago, on a 57 percent to 62 percent increase in its revenues.
Attractive PEG ratio
Yet, the company’s stock appears to be trading at a bargain price, with a price-to-earnings growth (PEG) ratio of just 0.6 as of May 31, 2011.
Meanwhile, Entropic Communications is very strong financially, with the company’s cash and short-term investments in marketable securities equal to almost seven times its total liabilities as of March 31, 2011.
In light of the factors mentioned above, and the fact that service providers are expected to make substantial infrastructure investments during the next few years in an effort to differentiate their offerings, my experience suggests that now is a good time to consider allocating a portion of your financial market assets to Entropic Communications.
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