With a market capitalization of $119.503 billion, AT&T Inc. (T) is a global provider of telecommunications, media, and technical services. The company operates in two segments: Communications; and Latin America.
While its net income grew 164.8% year-over-year to $4.16 billion during the second quarter ended July 31, 2022, its total operating revenue declined 17.1% from the year-ago value to $29.64 billion. In addition, its operating income decreased 34.5% from the prior-year quarter to $4.96 billion.
On the other hand, Ooma Inc. (OOMA) offers communications services and related technologies to businesses and residential customers in the United States and Canada. Ooma Business, Ooma Office, Ooma Enterprise, and Ooma AirDial are among the products offered by the company. The stock has a market capitalization of $289.656 million.
OOMA acquired Junction Networks Inc., which conducts business as OnSIP, an innovative provider of cloud-based phone and unified communications services for small and mid-sized businesses, from Intrado Corp. for approximately $9.75 million in cash.
The acquisition of OnSIP is expected to be accretive to OOMA's adjusted EBITDA beginning the fourth quarter of the current fiscal year. OnSIP is expected to generate slightly more than $10 million in annual revenue for OOMA.
Moreover, the ongoing digitization of industries and remote lifestyles have expanded the market for communications services. In addition, rising investments in advanced technologies should propel the growth of businesses that provide high-speed, continuous data connectivity.
While both T and OOMA should be beneficiaries of the industry tailwinds, here is why OOMA appears to be a better investment now:
Robust Financials
During the second quarter ended July 31, 2022, OOMA's total revenue increased 11.9% year-over-year to $52.65 million. Its gross profit grew 15.4% from the year-ago value to $33.82 million. The company’s net income came in at $338 thousand, compared to a net loss of $439 thousand. Its adjusted EBITDA came in at $3.98 million.
Impressive Growth Prospects
Street expects OOMA's revenue to rise 12.2% year-over-year to $215.7 million in fiscal 2022. In addition, its EPS is expected to rise 47.7% per annum over the next five years. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
The only Wall Street analysts that rated OOMA rated it Buy. The 12-month median price target of $23 indicates a 92.9% potential upside.
POWR Ratings Reflect Solid Prospects
OOMA has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. OOMA has a B grade for Growth, Sentiment, and Stability. Its strong financials and profitability are consistent with the Growth grade. The consensus price target and impressive earnings and revenue estimates justify the Sentiment grade. In addition, the stock beta of 0.69 is in sync with the Stability grade.
Of the 20 stocks in the F-rated Telecom – Domestic industry, OOMA is ranked #1.
Beyond what I stated above, we have graded OOMA for Quality, Value, and Momentum. Get all OOMA ratings here.
Bottom Line
While OOMA has slumped significantly in price over the past few months, its solid revenue and earnings growth in the last reported quarter positions it well for significant upside in the near term.
Moreover, the company’s strategic acquisition should boost its market reach and help the stock rebound in the near term. So, we believe the stock could be a better addition to one’s portfolio than T.
OOMA shares were trading at $12.18 per share on Friday afternoon, up $0.26 (+2.18%). Year-to-date, OOMA has declined -40.41%, versus a -13.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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