C-Com update

C-Com reported year end results recently. They were very good. For the year ending 2011, revenues nearly doubled vs. 2010. That was driven by very strong demand for their products and the unforeseeable positive impact on demand from the Japanese earthquake. What's better is that profitability was maintained.

I had hoped for the results, but after a longer time frame. I wish I could take credit, but that is just luck.

The issue I struggle with is when to sell. I don't mean when to trim, but when to liquidate entirely. Though there has been a run in the stock, it is still cheap. At 3.6x EV/ttm ebitda, 7.2x EV/3yr ave ebitda and 2x TBV. Here is a look at historical valuations. I took out the EV/ebitda when ebitda was low or negative.

So if sales stick to these levels there is room for valuation expansion yet. There are new products being introduced in 2012 that should help with revenue.

Having said that, I have sold about half of my position in CMI. I have learned a tough lesson about position sizes the hard way. I will stick to just 5% in CMI. Given the business risk and my lack of understanding the business, I think it is prudent to take some money off the table here.

I have put fair value around $1.00 with no growth from this level. A potential catalyst would be to continue the share buybacks or a special dividend.

Dean

Disclosure: The author is long CMI at time of writing, although significantly less than a few weeks ago.