See Beyond” Industry Crises

In September of last year, I wrote about an exciting company that I thought had great potential to do very well on the stock market. I stumbled upon this company, but its story struck a chord in an investment theme that I’ve been working on for a number of years.

The company I’m referring to is Cbeyond Incorporated (NASDAQ/CBEY). The company listed its shares for trading in the fall of 2005, stumbled for a while, and then found its legs based on solid financial growth.

Cbeyond is based in Atlanta and sells voice and broadband telecom services to small businesses in Chicago, Dallas, Denver, Atlanta, Houston and Los Angeles. The company offers traditional local, long-distance, and Internet access, along with enhanced applications like Web hosting, data backup, and file-sharing. The company maintains its own private network that uses Voiceover Internet Protocol (VoIP).

When the technology/telecommunications stock market crashed in 2000, it really seemed like it was the end for this sector of the market. Nobody expected stocks in this category to recover, and many of those stocks didn’t make a recovery. But from the ashes of the telecom meltdown came VoIP technology and great companies selling a new, cheaper way to communicate. Cbeyond was one of those companies, and it achieved the right critical mass to be a solid grower. It wasn’t too small to not be taken seriously and it wasn’t too big that it couldn’t generate high growth.

Cbeyond recently announced first-quarter revenues of $63 million, representing an increase of 33% over revenues generated in the first quarter of 2006.

Net income for the latest quarter was $2.7 million, as compared to breakeven net income, or $0.02 million, in the first quarter of 2006. The company finished the quarter with $39.4 million in cash. Since September of last year, this stock has appreciated over 50%. The stock is pricey now, but the company’s future remains bright. In my mind, Cbeyond is the perfect example of a nimble technology company that became a success out of the failure of an entire industry. Cbeyond proves that great investment opportunities always present themselves after a major industry crisis.