In Focus – EGHT

Determining whether a company is one of the best stocks to buy now requires a detailed examination of that company. In this report, we do a detailed examination of 8×8 Incorporated.

Background

8×8 Incorporated (EGHT) is a technology company that provides voice over Internet protocol (VoIP) technology and software as a service (Saas) communication solutions. EGHT is headquartered in San Jose, California.

Stock Fundamentals

8×8 Incorporated (EGHT) has achieved significant growth in sales over the last business cycle (roughly seven to eight years). But it has achieved relatively little growth in operating profit. These results are similar to the results a company achieves when it utilizes what we call the “sales maximization” strategy.

This is the classic strategy employed by many Japanese firms during their heyday and also by Amazon more recently. In this strategy, a firm tries to establish a firm foothold in a market before any of the competition is able to. In this strategy, immediate profits are of secondary importance. Of primary importance is to expand sales as rapidly as possible. Profits can be plucked once any new competition has been crowded out.

Theoretically, profits and (ultimately) net cash flows determine a firm’s true value. But in practice, sometimes these things have to be sacrificed in the short run to achieve success in the long run. EGHT is a perfect example of that. In the last eight years, EGHT’s price has risen from a little over $1 to roughly $11 today. The big question is this: can it continue?

Unfortunately, we feel the answer is no, or at least not in a way that will benefit investors in its stock. Its stock is now one of the most expensive stocks we cover (by any measure). And much of the potential of this firm is now recognized by the market and factored into the price. Even if EGHT soon starts to “pluck” the profits we were speaking of, current investors will probably see little benefit. We do not consider EGHT one of the best stocks to buy now.

Stat Sheet – 8×8, Incorporated 4/22/16

Ticker EGHT
Industry Communication Services
Price $ 11.46
Market Cap  $ 1,015
Dividend Yield 0.00
Dividend/CFOp 0.00
Equity/Assets 0.897
Average Equity/Assets 0.736
Financial Strength Above Average
Growth Prospects Average
Beta 0.65
Price Volatility Above Average
Stock Fundamentals C

(Our assessment of this firm’s fundamentals will be in effect for the rest of calendar year 2016)

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Disclaimer – Information contained herein has been obtained from sources believed to be reliable. Neither the author nor the publisher guarantees the accuracy or completeness of the information and methods described. This information is offered as general commentary only. It is not intended as investment advice. Investment and trading of securities involves risk, including of loss of capital. Market conditions change over time, and no assurance can be given that a reader may apply the principles described to make a profit. The author and publisher expressly disclaim all and any liability to any person for any investment or trading decisions that the reader may make in reliance on this information.

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In Focus – EGHT

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