Certainly appears that NSR is in a trading range at this point - I realize that the absolute P/E is high on this name, but on a relative basis, when most software based companies trade at 1.5x growth, I'm not sure one can argue it is expensive - on top of this, how many software companies are growing 25% in '06 with nearly 40% operating margins, and monopolistic market positions with long-term contracts locking up a pretty substantial portion of revenues far into the future. On top of this, you have a management team that has beat and guided up every quarter since coming public, you have forward guidance that has no contribution from the M&A activity that has happened in the space (Sprint-Nextel, Western Wireless-Alltel, VZ-MCI, SBC-ATT, and Now add ATT-BLS to that). THis is a collective $200 billion+ in merger activity in which NSR will see business from on the interoperability and network management side of the business - they may not see transactions until late in '06, but this gives me pretty good visibility on transaction growth going forward. All this, and the valuation certainly doesn't reflect the possibility of NSR's expansion of clearinghouse services internationally. Additionally, think about VOIP growth, and the increasing usage of wireless messaging where NSR holds the domain names. NSR's business thrives on change in the telecommunications industry. The ONE constant within the telecommunications industry is change itself. Sooner or later people will realize it and the multiple should appreciate - comparable companies I do not see as VRSN and SVR - I see EXBD, ABCO, GOOG, EBAY, COGT, NVT, GYI as peers - put these companies all up side by side, you'll notice glaring similaritites on ROE, ROIC, Operating margins and other metrics - while the businesses themselves are not comparable, their business MODELS are comparable - all of the companies I've listed are CATEGORY KILLERS - NSR is no different and when compared to this group, NSR is pretty reasonably priced.
As you can see, my outlook is pretty positive on the long-term potential of this company. Hope this helps.
Nice post - you seem to have a good handle on NSR. I agree, longer term this looks like a great stock. High growth, high margins, natural monopoly, short but solid track record - and levered to things like merger activity, voice over IP and international opportunities.
Side note - there was a recent lockup expiration (I think lifted earlier this week), which allows some existing sharholders (private equity guys like Warburg) to sell some shares - this typically causes a few days of pressure - might be the cause of this weakness. Could be a good opportunity to pick up some stock here.