Casa Systems Stock: A High-Prospects Contrarian 5G Play


Contrarian Casa Systems Aims to Re-Energize Business

My contrarian pick for today is Casa Systems Inc (NASDAQ:CASA), which has been kicked to the curb by investors. The stock is currently off by a whopping 59% from its initial public offering (IPO) high of $34.21 in March.

CASA stock looks pretty horrific on the chart, but it’s trading sideways in a narrow channel, looking for any evidence that things will get better.

This stock is what I consider to be a contrarian opportunity—a time when market demand for a stock is low as the company tries to work things out.

In these situations, contrarian stocks can subsequently surge if the underlying metrics improve. However, there is no guarantee that this will happen.


The company’s business is intriguing and makes Casa Systems stock worth a closer look.

Casa Systems develops cloud-based software infrastructure solutions that help providers in cable, wireless, and wireline offer high-speed 5G gigabit connectivity.

The company serves over 450 companies in over 70 countries, including numerous Tier 1 broadband service providers.

My bullish thesis is driven by what will be a massive demand for 5G solutions worldwide.

A look at the CASA stock chart displays a bearish double top that was followed by a negative downside gap. The stock is now floundering in a sideways channel.

Chart courtesy of

Mr. Market wants to see if Casa Systems can reverse its downward revisions in revenue and earnings.

If that happens, Casa Systems stock could retake the $20.00–$25.00 levels.

What CASA Stock Needs to Do

Casa Systems increased its revenue in three straight years, but the trend has been negative, which poses a red flag.

Fiscal Year Revenue (Millions) Growth
2014 $211.3
2015 $272.5 29%
2016 $316.1 16%
2017 $351.6 11.2%

(Source: “Casa Systems Inc.” MarketWatch, last accessed October 22, 2018.)

To make matters worse, Casa Systems is now expected to see revenue contract by 4.2% to $336.9 million in 2018 prior to it rallying 16.1% to $391.0 million in 2019. (Source: “Casa Systems, Inc. (CASA),” Yahoo! Finance, last accessed October 22, 2018.)

Casa Systems has been generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA), with growth in three straight years.

Fiscal Year EBITDA (Millions) Growth
2014 $92.6
2015 $108.2 16.8%
2016 $120.8 11.6%
2017 $144.0 19.2%

(Source: MarketWatch, op cit.)

The company is profitable on both a generally accepted accounting principles (GAAP) and adjusted basis, but the results in 2016 and 2017 are far below those seen in the prior two years.

Fiscal Year GAAP Diluted Earnings Per Share
2014 $3.45
2015 $4.05
2016 -$0.43
2017 $0.26

(Source: MarketWatch, op cit.)

Casa Systems needs to address its earnings pressure. The company’s earnings estimate trend is negative, which is not what you want to see.

Adjusted earnings are expected to fall to $0.84 per diluted share in 2018, followed by a small improvement, rallying to $0.92 per diluted share in 2019. (Source: Yahoo! Finance, op cit.)

In the meantime, Casa Systems is delivering positive free cash flow (FCF), which will help as the company tries to turn its operations around.

Fiscal Year Free Cash Flow (Millions)
2014 $56.3
2015 $9.1
2016 $103.4
2017 $88.0

(Source: MarketWatch, op cit.)

Analyst Take

So, while Casa Systems is profitable, the company needs to address its sluggish growth, especially at a time when 5G is starting to pick up steam.

If the company’s management team can right the ship, the result would be a major rally in the beaten-down CASA stock.