I have received quite a few requests for some details on why I like $WOW (WideOpenWest) so figured I would do a quick post with my thoughts.
I have never heard about the company before, though I think I have seen their logo in an advertisement. I saw the stock ticker while going through the morning upgrades on February 25th, 2021 - the $WOW ticker kind of catches your attention. From then on I spent some time doing some due diligence and finally took the dive on some calls on March 1st with the stock under $15. I think the stock is undervalued and will trade north of $20(and possibly $25) in the coming weeks for a few reasons:
Trades at a Steep Discount to Peers
When I first started to dig on $WOW (WideOpenWest), it traded at nearly 1x's revenues. Most of the other companies in the sector trade at least 2x's and higher - some much higher. Of course this is not an apple to apple comparison as companies have debt and other things to factor, but it definitely peeked my interest. One of its competitors, Cable One, trades at nearly a 10x's multiple:
Of course there are many things that go into valuation like debt/margin, ect. but still….
— Option Millionaires (@OMillionaires) March 4, 2021
So this is a $30+ stock just if it just trades at 2x's revenues.
It is a M&A Candidate
In July of 2020 it was reported by Bloomberg that $WOW (WideOpenWest) hired Bank of America to explore its options. The Cable/Broadband sector is always in the midst of consolidation. A nice read here on the potential next round:
The piece is a little dated, but it does give some approximate valuations for potential take-over targets based on previous bids and/or acquisitions. $WOW (WideOpenWest) is given a $6 bil price tag!? $90!?
The point here is that there is M&A in the sector and $WOW (WideOpenWest) would certainly fetch a hefty premium from where it is trading right now.
Some of the reason the stock has rallied since its recent earnings report is the success of its broadband first strategy. It doesn't take a genius to see folks are dropping the TV /Phone packages and going to standalone broadband plans then doing ala carte streaming services which may or may not include something like YoutubeTV, HULU Live, or Fubo. And then of course NFLX, DIS+, HBOMax , Peacock, ect. . $WOW (WideOpenWest) has been all over this. Their infrastructure has the ability to offer up to 1GB speeds to nearly 99% of the areas they serve. They have notched deals to provide some of these add-one services for convenience(and some added revenue) : https://ir.wowway.com/investor-relations/news/press-release-details/2020/WOW-Partners-with-Top-Streaming-Services-fuboTV-Philo-SlingTV-and-YouTube-TV-to-Help-Charleston-Customers-Cut-the-Cord/default.aspx
And best yet, the broadband is their highest margin service at over 60%+ while traditional TV packages were 20%. You can see the trend shift from their latest earnings and this shift is only going to increase. A tipping point of sorts that will drive high margin revenue:
$WOW (WideOpenWest) is not a monster growth story, but if they are able to continue to add broadband subs, they will be a monster margin story... with new subscribers just being the gravy.
There are other things I love here like Crestview Partners owning a 37% stake : https://www.sec.gov/Archives/edgar/data/0001701051/000095010319013817/dp114267_cs13da-4.htm
and Nine Ten Capital Management LLC just adding 6.5 mill shares or a 7.5% stake https://www.sec.gov/Archives/edgar/data/0001701051/000163523621000001/wow13g.txt
Moral of the story, at the end to day I see an opportunity: I think the stock is undervalued, under-appreciated, and under-the-radar. As that changes, the stock price will change. It started to see it last week as it got noticed and I expect more of the same this coming week and going forward.. $WOW (WideOpenWest) IPO'd at $17 in 2017 and hit an all-time high of $18.83. Would think it trades north of that soon:
Happy Trading all!