The WAN Connection

Ascend Communications

Although Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> has better than doubled shareholders' money each year since coming public in 1994; however, no net shareholder return has been created since the beginning of calendar year 1996. Since that time, the stock has suffered severe multiple compression, meaning that the P/E multiple has shrunk by about 65% since early 1996. Fortunately for investors looking for growth at a reasonable multiple, Ascend presents an opportunity at least as interesting as any other company in the group.

On Thursday, Ascend received one of the largest, if not the largest, single order ever for remote access concentrators. UUNet, the Internet and broadband access division of WorldCom, announced the purchase of enough MAX TNT concentrators to raise its dialup port capacity by 85% to accommodate its rapid growth and the addition of the ANS network division of American Online. Trading at 21 times 1998 earnings estimates, Ascend poses little valuation risk and a good deal of upside, and deserves a look from investors looking for beaten-up companies growing at rates in the 30% annual range.

The Financials

Ascend has achieved an 85% return on invested capital, second in the group only to Pairgain. Should the company successfully deploy its excess capital on new projects such as its Sahara ATM access devices and concentrators, incremental earnings gains are possible. Last quarter, the company reported EPS of $0.31 on a pro-forma basis, up 26% year-over-year, on a 52% increase in revenues. A recent frame relay order from Japan's largest telecom company, NTT, along with Thursday's order for access concentrators bodes well for earnings estimate revisions for the balance of 1997 and into 1998. With over half a billion dollars in liquid investments, Ascend remains financially flexible and presents little earnings multiple downside.

(Go to next snapshot.)

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us
..

..

..

..

..

....

...

...

...

...