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Blog : Undervalued Penny Stock Gem
October 28th, 2008
XETA
XETA Technologies
Market: Nasdaq
Recently we profiled XETA Technologies for subscribers of Peter Leeds Penny Stocks. The company has been pulled down in sympathy since then, along with the entire technology sector, and in our eyes represents tremendous value.
We continue to track XETA's progress, and recently followed up for some comments. Here are the results of the discussion, which reveals the penny stock's long term outlook, and industry position.
For more on XETA, including buy and sell targets, and other sub $5 penny stocks, visit PeterLeeds.com.
1. Competitive Landscape (who else is going for the same customers, and where does your company fit in?)
As a value added reseller of Avaya, Nortel and Mitel communications equipment, XETA competes with two main groups of resellers. The first group, which includes large IT systems integrators and network service providers, generates the largest portion of reseller revenue. XETA has partnered with several of these resellers, such as Verizon and IBM Global Services, to provide installation and maintenance services on an outsourced basis. XETA competes directly with the remaining reseller market, which is highly fragmented and mostly comprised of 1,000s of small regional and local resellers
2. Competitive Advantages (what factors give you a leg up on your competition?)
XETA is one of a handful of resellers that holds the highest accreditations from both Avaya and Nortel, two of the three largest communications equipment vendors in the United States. XETA is in the National Partner Program of Avaya and an Elite Nortel dealer. There are 1,500 Avaya Business Partners nationally of which 35 hold the Platinum status...of those only 9 are in the National Partner Program. There are approximately 1000 Nortel Business Partners of which 28 hold the Elite Partner designation. Having the highest levels of accreditation from both of these vendors gives XETA significant advantage when competing for business from Fortune 1000 customers, which often have both technologies in their networks. High levels of competencies with both vendors also make XETA more important to its wholesale IT systems integrator and network service provider partners.
XETA is one of very few resellers who has a nationwide sales and service footprint and an in-house 24/7/365 contact center. The company maintains some of the highest service satisfaction ratings in the business....and has received numerous supplier/partner of the year awards from customers and vendors. These credentials and capabilities allow XETA to compete very well against smaller local and regional resellers.
XETA is one of a few public company resellers and one of even fewer with a 25-year operating history. XETA has a solid and verifiable balance sheet, which makes the company unique among its direct competitors. In times of restricting credit, customers are increasingly looking for strong suppliers with adequate liquidity and access to capital.
3. Barriers to Entry (what makes it difficult for new competition to emerge in your space?)
XETA significant enjoys significant efficiencies of scale (a nationwide sales and service foot print) and scope (highest accreditations from both Avaya and Nortel) that would be difficult for competitors to duplicate. Furthermore, the company has a 25-year reputation of providing high levels of customer service.
4. Threats to Success (what are the issues you are most concerned with, and how are you addressing them?)
During the trailing twelve months ended July 2008, XETA has grown earnings and revenue by 86% and 19%, respectively, and anticipates significant growth over the next several years. Rapid growth creates its own set of challenges and the company must continue to execute and deliver high levels of customer services. This is a focus and the company believes it has made the appropriate investments to ensure continued execution.
5. Industry Outlook (what are the expectations for your industry over the next five years?)
Clearly this is a difficult economic environment and it is very challenging for anybody to predict what will happen for the balance of the year or next. Over the next five years, the communications equipment market is expected to keep pace or slightly exceed growth of GDP. Certain applications with demonstrable ROIs, such as unified communications and contact center solutions, will grow at a much faster pace. XETA is making appropriate investments in those higher-growth applications that will allow the company to outpace the growth of the overall market.
6. Company Outlook (what do you expect your company to look like five years from now?)
With the strategies the company has put in place, XETA is targeting average annual organic growth of 15% for the next three to five years. The company will look to accelerate growth with strategic acquisitions. XETA is targeting net margin of 4% to 6% over the next three to five years. As margin expands to targeted levels, the bottom line should grow faster than the top.
For more on XETA, including buy and sell targets, and other sub $5 penny stocks, visit PeterLeeds.com.