Why CASA Stock Could Be an Opportunity
5G has been a buzzword for a few years now, but not all 5G stocks have been soaring during this period.
Casa Systems Inc (NASDAQ:CASA), for instance, rallied after its initial public offering in December 2017 but fell into a downtrend soon after.
It’s human nature to chase the hottest tickers and ignore the down-and-out ones. But the neat thing is, after the market crash last year, Casa Systems stock seemed to have found a bottom and started climbing back up again. It also picked up more momentum earlier this year.
Of course, as you can see in the following chart, CASA stock is still trading substantially lower than its 2018 high.
But if you look at the company’s fundamentals, you’ll see that Casa Systems stock has a lot going for it right now, and the recent upward momentum might be here to stay.
Casa Systems Inc (NASDAQ:CASA) Stock Chart
Chart courtesy of StockCharts.com
Casa Systems Inc is a communications technology company that offers core-to-consumer building blocks to speed 5G transformation with future-proof products and solutions and cutting-edge bandwidth for all access types.
To put it simply, the company’s solutions open up new ways for service providers to build networks.
And while CASA doesn’t seem like a big ticker, the company serves more than 475 Tier 1 and regional service providers worldwide. According to its latest investor presentation, Casa Systems’ solutions have been deployed in more than 70 countries. (Source: “Q1 2021: Casa Systems: May 2020,” Casa Systems Inc, last accessed June 17, 2021.)
Given the nature of the company’s business, it shouldn’t come as a surprise that 5G is becoming a major catalyst for CASA stock. There’s a multi-year network transformation currently underway, and Casa Systems is capitalizing on the opportunity.
In the first quarter of 2021, the company generated $104.3 million of revenue, representing a 24.8% increase year-over-year. Casa Systems’ revenue from its wireless product segment rose by 80% year-over-year to $40.3 million. (Source: “Casa Systems Reports First Quarter 2021 Financial Results,” Casa Systems Inc, April 29, 2021.)
Thanks to new orders for the segment, Casa Systems’ wireless backlog reached $145.0 million at the end of the first quarter, up by 427% from a year earlier and 63% sequentially.
Notably, the company received 17 new purchase orders for its 4G/5G wireless products.
Based on what Casa Systems Inc has been doing with its strategic growth products, the best is yet to come.
In the company’s latest earnings conference call, its founder, chairman, and chief executive officer, Jerry Guo, said,
We have integrated our cloud native 5G stand alone core functions with the two of the largest global hyperscale public cloud platforms, Amazon Elastic, Kubernetes Service and Google Cloud [Anthos]. This significantly expands the way we can deploy our 5G stand alone core to a service provider customers and now to enterprise customers as well and enables our customers that additional capability to provision and deployed services and applications in a public cloud or a combination of public and private clouds.
(Source: “Casa Systems, Inc. (CASA) CEO Jerry Guo on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, May 2, 2021.)
Other than generating more revenue and building up backlog—which should drive revenue growth in the future—Casa Systems earned more profit in the first quarter of 2021. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled $20.2 million in the quarter, up by a staggering 452% year-over-year.
Casa Systems Inc’s adjusted earnings came in at $0.11 per diluted share for the first quarter. That marked a significant improvement, considering that, in the year-ago period, the company incurred an adjusted net loss of $0.07 per diluted share.
And things are about to get even better.
For full-year 2021, management expects Casa Systems to generate $425.0 to $445.0 million in revenue and $60.0 to $70.0 million in adjusted EBITDA. To put that in perspective, the company earned $393.2 million in revenue and $55.3 million in adjusted EBITDA in 2020.
The growth story for Casa Systems stock could be just getting started.
Casa Systems Inc estimates that the total addressable market for its wireless products segment is a whopping $35.2 billion—not exactly a surprise, given how much money service providers are spending on 5G.
If the company can capture a meaningful portion of this large market opportunity, it could lead to substantial upside for CASA stock.