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Rating Change Detail - ABOVENET, INC. (ABVT) - 7/31/2010
The stock was upgraded from No Interest to Some Interest on 7/31/2010 by the Small-Cap Growth Investor Strategy based on the principles of the Motley Fool. The score according to this strategy rose from 49% to 76%. A full detailed analysis of ABVT using this strategy is included below. For a full detailed analysis of ABVT using 12 proven strategies of Wall Street Legends, take a free trial to Validea.com

Detailed Analysis of ABOVENET, INC. (ABVT)

Strategy: Small Cap Growth Investor - Based on: Motley Fool

PROFIT MARGIN: [PASS]

This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. ABVT's profit margin of 72.01% passes this test.

RELATIVE STRENGTH: [FAIL]

The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. ABVT, with a relative strength of 70, fails this test.

COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL]

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for ABVT (-53.15% for EPS, and 13.82% for Sales) are not good enough to pass.

INSIDER HOLDINGS: [PASS]

ABVT's insiders should own at least 10% (they own 18.36% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well.

CASH FLOW FROM OPERATIONS: [PASS]

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. ABVT's free cash flow of $1.51 per share passes this test.

PROFIT MARGIN CONSISTENCY: [PASS]

ABVT's profit margin has been consistent or even increasing over the past three years (Current year: 78.20%, Last year: 13.22%, Two years ago: 5.44%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.

R&D AS A PERCENTAGE OF SALES: [NEUTRAL]

This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in ABVT's case.

CASH AND CASH EQUIVALENTS: [PASS]

ABVT's level of cash $165.3 million passes this criteria. If a company is a cash generator, like ABVT, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.

ACCOUNT RECEIVABLE TO SALES: [PASS]

This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for ABVT was 6.22% last year, while for this year it is 5.75%. Since the AR to sales is decreasing by -0.47% the stock passes this criterion.

LONG TERM DEBT/EQUITY RATIO: [FAIL]

ABVT's trailing twelve-month Debt/Equity ratio (7.84%) is too high, according to this methodology. You can find other more superior companies that do not have to borrow money in order to grow.

"THE FOOL RATIO" (P/E TO GROWTH): [PASS]

The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (ABVT's is 0.17), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. ABVT passes this test.

The following criteria for ABVT are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: [PASS]

ABVT has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ABVT currently has 26.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.

SALES: [PASS]

Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. ABVT's sales of $371.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". ABVT passes the sales test.

DAILY DOLLAR VOLUME: [PASS]

ABVT passes the Daily Dollar Volume (DDV of $12.6 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."

PRICE: [PASS]

This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. ABVT with a price of $53.20 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.

INCOME TAX PERCENTAGE: [FAIL]

ABVT's income tax paid expressed as a percentage of pretax income either this year (-199.57%) or last year (16.40%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).

For a full detailed analysis of ABVT using 12 proven strategies of Wall Street Legends,
take a free trial to Validea.com

Rating Change Detail - ABOVENET, INC. (ABVT) - 7/31/2010

Detailed Analysis of ABOVENET, INC. (ABVT)

Strategy: Small Cap Growth Investor - Based on: Motley Fool