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DragonWave Inc. Message Board

  • byronangel byronangel Mar 27, 2013 9:43 AM Flag

    One small signal could put DragonWave back on the radar

    Chris Umiastowski

    Special to The Globe and Mail

    Published Tuesday, Mar. 26 2013, 7:30 PM EDT

    Chris Umiastowski is the growth investor for Globe Investor’s Strategy Lab.

    DragonWave Inc., a small-cap Ottawa-based technology company, is on my radar as a potential investment pending a turnaround in the business.

    At the start of 2009, DragonWave’s stock traded at about $1. One year later, it traded at almost $14. Why? The company had one customer named Clearwire Corp., which was building out a huge wireless network in the United States. Clearwire had decided DragonWave’s equipment was the best in the industry, and they started buying lots of it. DragonWave became very profitable very fast. Analysts took notice, and everybody started wondering who would be the next major customer to push DragonWave up to the next level of success.

    The time to buy DragonWave was prior to this growth. For anyone paying close attention, it was rather easy to predict. Clearwire had already settled on DragonWave equipment, and was waiting on a big injection of cash from investors. Once Clearwire investors piled $3.2-billion into their company, raised through a variety of stock issues, DragonWave’s revenue started to soar.

    Very few people were paying attention. DragonWave was, prior to this growth, a small company that was losing money. They had no big-name customers to brag about. Analysts are very busy people. They are usually responsible for covering too many stocks, making it impossible to divert enough attention to some of the more interesting, smaller names. That is, until these smaller names become interesting by way of impressive financial results.

    Sentiment: Hold

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    • This writer is basically saying that when he sees the good news, he will pull the trigger. However, when the good news comes out, he will be pulling the trigger at $2.50 or more. If there is a M&A deal, there is no trigger to pull.
      Anyway, overall, I like the overall publicity in getting the stock out in the limelight.

      Sentiment: Strong Buy

    • Today, DragonWave is back to being an off-the-radar stock. Clearwire ran out of capital to continue building its network, and DragonWave’s revenue crashed. The stock is back down to about $1.65. DragonWave hasn’t won enough new business to offset this loss of revenue. To make it even more complicated, they acquired a competing business from Nokia Siemens Networks, which comes with more operating risk, more cash burn, but perhaps wider relevance to the wireless data industry.

      I really like DragonWave as a company, and I admire its management team. But I don’t like the stock. Not yet. That said, I believe the company is a leader in an important growth industry, and if it manages to digest its Nokia Siemens acquisition without running out of cash, it might turn out to be another situation like 2009. It might be an incredible opportunity. The stock is ignored by analysts and investors right now and nothing will change that until something newsworthy happens. For those paying attention, the news will develop, slowly, before our eyes.

      Sentiment: Hold

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