WHITE PLAINS, N.Y. (
) -- Many companies imploded after the tech bubble popped, but not many came back to life and made investors money.
is a phoenix-like company that has become successful in its second incarnation.
The White Plains, New York-based provider of fiber-optic networks has weathered the economic recession better than it did in the early 2000s and is poised to perform even better in the turnaround as infrastructure once again becomes a focal point for companies.
AboveNet's operating performance has been extremely good. In the past 12 months, the company had an operating margin of over 27% and a profit margin of nearly 26%. That has led to heady stock performance. AboveNet's stock has jumped 252% during the past 52 weeks, with a beta value of only 0.61. (The market as a whole has a beta of 1.)
A sensible debt load and an increasing cash balance that supports a current ratio of 1.6 underscores AboveNet's performance, which is driven by strong revenue growth and manageable costs rather than a heavy reliance on debt. The lack of substantial leverage shows a conservative management hand in terms of financing that should help the company avoid a repeat of its first demise.
Several big-name companies such as
Level 3 Communications
are investing in fiber-optic networks much like AboveNet's. AboveNet already has more than 2 million miles of fiber in place in several major cities supporting its operations. Fiber-optic networks give companies massive amounts of bandwidth, which is becoming increasingly necessary as more business moves online and includes multimedia content.
Access to fiber networks such as AboveNet's will increasingly become a necessity when the economy rebounds. Information services like these are now one of the major inputs to most companies' productivity, so regardless of the added expense, it will be looked at as a baseline cost of doing business rather than a luxury that can be cut in times of trouble, making revenue streams more reliable.
AboveNet is a strong company financially and, with a return on equity of nearly 29%, it's backed by healthy profits. A price-to-earnings ratio of 14.6 versus an industry average of 23.3 indicates that this company is also a bargain despite its big run. TheStreet.com Ratings gives AboveNet a "buy" recommendation.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.