Ceragon Networks Ltd: 5G Penny Stock Bullish on Strong Q2 Results

Ceragon Sees 2021 Revenue at Higher End of Guidance

Ceragon Networks Ltd (NASDAQ:CRNT) might be a 5G penny stock, but it’s hardly overlooked or ignored. In fact, CRNT stock was a darling of the dotcom era that actually had its initial public offering (IPO) just before the dotcom bubble burst.

While Ceragon stock’s performance since then has been a little unpredictable, it has been slowly gaining steam since the broader market cratered during the COVID-19-fueled sell-off in March 2020. As of this writing, CRNT stock is up:

  • 25% over the last three months
  • 52% year-to-date
  • 60% year-over-year
  • 330% since bottoming in March 2020

Ceragon Networks Ltd’s outlook for the remainder of 2021 is solid. Second-quarter results were strong in terms of revenue growth and an improved net loss. Ceragon also had a strong quarter in terms of bookings, new contracts, and 5G design wins.

If you didn’t know the company reported strong second-quarter and year-to-date results (with overall business returning to normal run rates in Q2) and only looked at its year-to-date stock chart, you might think that Ceragon stock is in trouble.

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Of course, this is the furthest thing from the truth. Admittedly, Ceragon Networks Ltd’s share price is down 62% from its 52-week high of $6.90 in January. But there’s more to the chart than meets the eye.

Over a two-day period in mid-January, CRNT stock exploded roughly 125%, from $3.07 to $6.90. Why? Because of Twitter Inc (NYSE:TWTR). It seems that some traders on the social networking site were “hyping” Ceragon stock, and the meme traders jumped on board.

What juicy information did they get to make CRNT stock go supernova? Barring any information from the company itself, traders on Twitter highlighted the fact that Ceragon Networks Ltd was a “5G play” and “a good stock to buy.”

What more do you need? Nothing, it seems.

Ceragon stock ripped higher, was supported by the unfounded optimism for a couple of months, then traded back down to Earth. You’d have to announce some pretty groundbreaking news to justify the doubling of a company’s value in just a couple of days. But there wasn’t any.

Today though, there’s more than enough reason to be optimistic—not enough to see the company’s share price double in the near term, but certainly enough to keep this 5G stock on your radar.

Of the Wall Street analysts following Ceragon Networks Ltd, their average 12-month share-price target is $5.87, with a high estimate of $6.50. This suggests upside potential of 38% and 53%, respectively.

Chart courtesy of StockCharts.com

Ceragon Networks Ltd Overview

Ceragon is an innovative 4G and 5G market leader. The company helps telecom operators and other service providers increase their efficiency and enhance their customer-experience quality with wireless backhaul and fronthaul solutions, which is an alternative to fiber deployment. (Source: “Investor Presentation: August 2021,” Ceragon Networks Ltd, last accessed August 9, 2021.)

Its customers include service providers, public safety organizations, government agencies, and utility companies. They use Ceragon’s solutions to deliver 4G and 5G wireless network technology, mission-critical multimedia services, and other applications at high reliability and speed.

Ceragon’s solutions are deployed by over 2,000 customers in over 130 countries.

Strong Q2 Results

For the second quarter ended June 30, Ceragon Networks announced that its revenue increased 9.9% year-over-year and 0.4% sequentially to $68.6 million. (Source: “Ceragon Networks Reports 2021 Second Quarter Financial Results,” Ceragon Networks Ltd, August 2, 2021.)

The company reported a second-quarter net loss of $1.7 million ($0.02 per share). This is compared to a loss of $5.5 million ($0.07 per share) in the same prior-year period and a loss of $1.2 million ($0.01 per share) in the first quarter of 2021.

Ceragon Networks Ltd’s gross profitwas $21.9 million, for a gross margin of 31.9%, compared to a gross margin of 26.4% in Q2 2020 and 29.5% in Q1 2021. Ceragon reported operating income of $500,000, compared to an operating loss of $3.5 million in the second quarter of 2020 and operating income of $400,000 in the first quarter of 2021.

Business Outlook

Ceragon Networks Ltd’s management remains confident about its revenue growth in 2021. It expects its revenue to be on the high end of its annual revenue guidance—anywhere between $275.0 and $295.0 million. It also expects to return to profitability in the second half of 2021.

Thanks to the robust growth in 5G connections, boost in traffic, and deployment of cell sites, Ceragon should continue to report strong revenue growth for years to come.

History is on its side. The COVID-19 pandemic brought a mass exodus to the online world in 2020, creating the urgent need for more network capacity. As a result, telcos are pushing to accelerate their 5G plans.

Ceragon Networks Ltd has a strong history of innovating on the transitions between wireless generations. The company grew significantly during the transition from 2G to 3G, and from 3G to 4G. Right now, we’re on the cusp of a global transition from 4G to 5G.

Between 2005 (2G) and 2009 (3G), the company’s revenue jumped 190% from $55.0 to $160.0 million. It jumped an additional 80% ($300.0 million) by 2018 (4G). And the company expects to report close to $295.0 million in 2021 (5G).

Analyst Take

An innovative 4G and 5G market leader, Ceragon Networks Ltd is a great company that has been reporting strong revenue growth and expects to return to profitability in 2021. It has been increasing its market share and market size, even topping Huawei with its market-leading outdoor unit market share and number of units sold.

CRNT stock might be a 5G penny stock, but it has what it takes to be a major play in the coming quarters and years.