I’ve unearthed my greatest find to date. This communications giant is trading at way below fair value. What’s even better is that it has incredible financial health and momentum indications. I bought its shares recently and I’m over the moon to share the company with you. This an investment that is as rare as I’ve seen. I bet Warren Buffett would be proud.
Gamma Communications (LSE:GAMA) is my investment of the decade. The company works across call management, mobile and connectivity amongst a plethora of other communications operations. It is primarily a business-to-business revenue stream.
Way below fair value
The shares are currently trading 55% below their high.
What’s exciting is the company is way undervalued by discounted cash flow analysis. On an earnings per share without non-recurring items basis, the margin of safety is roughly 35%.
However, that’s not the primary reason this investment is in the bag for me.
I’m driven by the incredible cash-to-debt (10) ratio and the ultra-strong return on invested capital (19%).
What’s more is that three-year revenue growth is 13.1%, which is better than 79% of 375 companies in the telecommunications industry.
One risk here? Revenue growth is slowing to some degree. That means the company may not be my traditional growth investment. That being said, it is still wildly competitive and increasing healthily.
As a value play, which is Warren Buffett’s foundational strategy, these shares are off to a strong start.
Momentum: what we need to reach the sky
Good value without momentum is a risky business.
I want to make sure the value I am seeing is also going to be recognised by other investors. If I don’t make sure of this, there’s a chance that my great company will never let me realise profits from shares.
Average volume is currently reported to be 119,000. That means around 119,000 shares are traded per day on average. That is significant interest to drive share prices up once the fundamental advantages begin to be priced in. However, the risk here is that the shares aren’t as competitive as household names. I’m not so concerned, though, as the market cap is £1.03bn.
There are other momentum indicators that I have analysed that tell me that the shares have considerable growth prospects that are already being picked up by others. That’s a tell-tale sign I’m onto a winner.
Patience
Patience is a virtue. I know as an investor that I’m not going to see profits from this play immediately. It could be three to five years before this investment sees the light of day. However, I bet it will be sooner.
I can see the risks here. The biggest one is selling before profits come. There aren’t any major financial concerns other than slowing efficiencies to some degree. If that’s the only thing to worry about, I’ll sleep well at night owning its shares.
