Is Polycom a Bargain Here?

With shares of Polycom (NASDAQ:PLCM) trading at around $10.05, is PLCM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

We’ll take a look at the obvious news first. Then, we’ll delve deeper into the numbers and see if Polycom might present a good investing opportunity right now. As you might already know, Polycom has been downgraded to Hold from Buy at Stifel Nicolaus. The downgrade stems from the news that Sudhakar Ramakrishna will be leaving the company effective March 15. This move has led to speculation that there could be a problem with new products, as Sudhakar Ramakrishna is President of Products & Services. This might not be big news on its own, but four high-profile executives have left the company in the past year. This is rarely a good sign. Executives don’t leave a company if the atmosphere is good and the potential is high.

The good news is that Polycom is a leader in video collaboration. Therefore, there should be a lot of potential going forward. However, the numbers do paint an interesting picture. When you look at Polycom compared to Plantronics (NYSE:PLT), Polycom is weaker in almost every area. Polycom has significantly lower margins, a much lower ROE, and a substantially higher P/E at the moment. There is also a slightly higher short position on Polycom. However, it’s not all bad news for Polycom when it comes to numbers.

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong      

The debt-to-equity ratio for Polycom is strong. The balance sheet is perfect. This is a big positive for the company as it allows for many different opportunities for growth through acquisitions and/or returning capital to shareholders.

Debt-To-Equity

Cash

Long-Term Debt

PLCM

0.00

$674.27 Million

$0

PLT

0.03

$328.90 Million

$20.00 Million

CSCO

0.31

$45.00 Billion

$16.33 Billion

 

T = Technicals on the Stock Chart Are Weak  

Polycom has underperformed the S&P 500, Plantronics, and Cisco Systems (NASDAQ:CSCO) over the past three years. Polycom has showed a negative return over that three-year timef rame while the market has been on fire. This is bad sign. For example, how poor would the performance have been if the market had been weak over the past three years?

Polycom is also the only company of the three listed here that doesn’t offer yield. Plantronics yields 1.00 percent. Cisco yields 2.70 percent.

1 Month

Year-To-Date

1 Year

3 Year

PLCM

-12.46%

-3.92%

-53.15%

-17.93%

PLT

9.95%

11.20%

10.18%

46.59%

CSCO

-0.72%

5.96%

6.17%

-9.00%

 

At $10.05, Polycom is currently trading below all its averages.

50-Day SMA

10.80

100-Day SMA

10.46

200-Day SMA

10.51

 

E = Earnings Have Been Inconsistent             

Earnings and revenue had been improving on an annual basis until 2012.

2008

2009

2010

2011

2012

Revenue ($)in billions

1.07

966.98M

1.22

1.50

1.39

Diluted EPS ($)

0.44

0.29

0.39

0.75

0.06

 

When we look at the last quarter on a year-over-year basis, we see a decline in earnings and revenue.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in millions

455.80

367.47

358.50

335.39

353.03

Diluted EPS ($)

0.27

0.08

0.04

-0.08

0.01

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry, But Not the Company  

Polycom is a global provider of high-quality, easy-to-use communications solutions that enable enterprise, government, education and healthcare customers to more effectively collaborate over distance, time zones, and organizational boundaries. Trends support the industry, but Polycom has to deal with fierce competition.

Conclusion

When you combine weak margins, poor valuation, disappointing stock performance in a strong market, inconsistent growth, insider selling over the past few months (not previously mentioned,) executives leaving the company, and an ROE of -2.54 percent, you have a stock that is an easy STAY AWAY. The only big positive is the balance sheet.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.