Ooma Inc: Institutions Love this Underperforming Work-at-Home Stock

Ooma stockWhy You Want to Look at This Ignored Work-at-Home Stock

The COVID-19 pandemic has been a nightmare for the country, but it has also brought attention and superlative stock gains to certain companies. As workers shifted to working at home, companies that offered work-at-home technologies saw their share prices rocket higher.

But not all work-at-home stocks have benefited. That’s the case with Ooma Inc (NYSE:OOMA), a provider of Voice over Internet Protocol (VoIP) phone services to residential and business customers.

Ooma stock has traded in a relatively narrow consolidation pattern since the V-shaped rally from its March low, failing to get any sustained life from the stock market recovery.

While there are some concerns that workers shifting back to offices will hurt work-at-home stocks, there’s also a view that many workers will continue to stay put.

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Ooma Inc’s shares have more than doubled from their March low, but they remain 22% below their 52-week high, up only 9.1% over the past year.

Ooma stock made several attempts to break above channel resistance at $18.00 to $19.00 in July and August 2020 but failed to hold.

The following chart shows minimal direction, but if Ooma Inc can deliver better financial results, its stock will likely target another breakout attempt.

Chart courtesy of StockCharts.com

Steady Revenue Growth & Profitability Support Bull Case for Ooma Stock

Ooma Inc reports in a fiscal year ending January 31.

The company’s revenues have increased in the double-digits in three of the past four years, to a record $151.6 million in fiscal 2020. Ooma achieved a healthy compound annual revenue growth rate (CAGR) of 14.5% during the same time frame.

Fiscal Year Revenues (Millions) Growth
2016 $88.8 N/A
2017 $104.5 17.7%
2018 $114.5 9.5%
2019 $129.2 12.9%
2020 $151.6 17.3%

(Source: “Ooma Inc.” MarketWatch, last accessed February 9, 2021.)

Looking ahead to Ooma’s upcoming fiscal 2021, which encompasses the pandemic period, the company could grow its revenues by 10.8% to $167.9 million, followed by 8.0% to $181.5 million in fiscal 2022. (Source: “Ooma, Inc. (OOMA),” Yahoo! Finance, last accessed February 9, 2021.)

Since fiscal 2016, Ooma has not delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA), albeit the EBITDA loss narrowed in fiscal 2020.

Fiscal Year EBITDA (Millions) Growth
2016 -$11.2 N/A
2017 -$11.1 0.8%
2018 -$11.5 3.4%
2019 -$13.0 -13.7%
2020 -$10.0 23.4%

(Source: MarketWatch, op. cit.)

As far as earnings per share (EPS) based on generally accepted accounting principles (GAAP) go, Ooma Inc has incurred steady losses.

Fiscal Year GAAP Diluted EPS Growth
2016 -$1.38 N/A
2017 -$0.74 46.4%
2018 -$0.71 4.1%
2019 -$0.74 -3.7%
2020 -$0.89 -21.4%

(Source: MarketWatch, op. cit.)

But adjusting for one-time items, the picture looks better.

Ooma Inc has received revisions higher in its consensus adjusted EPS estimate. For fiscal 2021, analysts estimate that Ooma will report an adjusted $0.47 per diluted share and follow that with $0.39 per diluted share in fiscal 2022. (Source: Yahoo! Finance, op. cit.)

On a quarterly basis, Ooma beat the consensus EPS estimates in the last three quarters by 450%, 86%, and 63%, respectively.

The company’s free cash flow is still negative, but this shouldn’t be a problem, given the consistent revenue growth and adjusted profitability.

Fiscal Year Free Cash Flow (Millions) Growth
2016 -$3.4 N/A
2017 -$1.2 65.0%
2018 $0.7 159.3%
2019 -$5.9 -941.3%
2020 -$10.9 -85.3%

(Source: MarketWatch, op. cit.)

Analyst Take

Ooma Inc has a small market cap of about $330.0 million, but the institutional interest has been on the rise, with 138 institutions holding a 79.1% stake in the outstanding Ooma shares. (Source: Yahoo! Finance, op. cit.)

If the company can deliver on its expectations, I wouldn’t be surprised to see Ooma stock break out of its year-long slump.