Last week I established a new position in XETA Technologies (XETA), which sells, installs and services communication technologies for small, medium and large (Fortune 1000) companies. My average cost is $3.83 and the shares closed Friday at $3.77.
XETA was founded in 1981 and is based in Broken Arrow, Oklahoma. This is a small company, the market cap is around $40 million or less, with 10 million shares outstanding. There's not much float most days, and it took me a long time to fill the position. Of course, the market sold off big the day after I finished building my holding. But that's the way it goes.
There's no dividend, and the stock trades at 1.2 times book value and less than 0.5 times sales.
XETA has greatly improved its balance sheet. The company has grown its cash balance from $63,600 in October 2008 to more than $5.4 million as of January 31, 2010. During that same time frame, total debt has been cut from $3.9 million to zero. Cash flow from operations has funded all of the cash increase. XETA will report its Q2 results later this month. Needless to say, I'll be particularly interested to see what it says, and also listen to their analyst call.
The industry for what is often called "enterprise communications solutions" is large and competitive. There are many regional players. XETA, despite being a micro-cap stock, operates nationally and this gives it a competitive advantage, particularly when bidding against the regional outfits. It has also announced agreements to buy two companies in the past month or so.
The risks with this holding include the fact that there is some customer concentration risk. Marriott accounted for 10% of XETA's sales last year, and the Miami Dade County Public School system accounted for another 5%. Also, XETA uses multiple vendors such as Avaya, Mitel, Nortel, Hitachi and Samsung, and there is some talk of pricing on Avaya products, which could negatively impact the company.
Anyone interested should, of course, do their own due diligence. And remember -- there is VERY LOW liquidity in the shares.
XETA was founded in 1981 and is based in Broken Arrow, Oklahoma. This is a small company, the market cap is around $40 million or less, with 10 million shares outstanding. There's not much float most days, and it took me a long time to fill the position. Of course, the market sold off big the day after I finished building my holding. But that's the way it goes.
There's no dividend, and the stock trades at 1.2 times book value and less than 0.5 times sales.
XETA has greatly improved its balance sheet. The company has grown its cash balance from $63,600 in October 2008 to more than $5.4 million as of January 31, 2010. During that same time frame, total debt has been cut from $3.9 million to zero. Cash flow from operations has funded all of the cash increase. XETA will report its Q2 results later this month. Needless to say, I'll be particularly interested to see what it says, and also listen to their analyst call.
The industry for what is often called "enterprise communications solutions" is large and competitive. There are many regional players. XETA, despite being a micro-cap stock, operates nationally and this gives it a competitive advantage, particularly when bidding against the regional outfits. It has also announced agreements to buy two companies in the past month or so.
The risks with this holding include the fact that there is some customer concentration risk. Marriott accounted for 10% of XETA's sales last year, and the Miami Dade County Public School system accounted for another 5%. Also, XETA uses multiple vendors such as Avaya, Mitel, Nortel, Hitachi and Samsung, and there is some talk of pricing on Avaya products, which could negatively impact the company.
Anyone interested should, of course, do their own due diligence. And remember -- there is VERY LOW liquidity in the shares.
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