A Trade on Trading Cell Phones

09/19/2003 12:00 am EST


Michael Murphy

Former Editor, New World Investor

Technology expert Michael Murphy has added Evolving Systems to the buy list of The Tech/Biotech Trader. He calls it an event-driven buy; he expects the company to benefit from a new government regulation affecting wireless stocks. Here’s his assessment.

"The government has mandated that beginning Nov. 24, consumers are permitted to keep their cell phone numbers when changing carriers. While this is bad news for smaller and debt-ridden carriers, it’s very good news for Evolving Systems (EVOL NASDAQ), which dominates number portability software for cellular applications. They sell primarily to top-tier U.S. telecom companies to enable them to comply with new regulations. Sales of this software should be picking up right now.

"Evolving Systems also sells NumeriTrack, a package for phone-number inventory management that helps carriers comply with government phone-number conservation mandates. (You may not have known 10-digit phone numbers are an endangered species.) Another software package allows communications systems to share government-authorized information about wireless subscriber identity, presence and availability across wireless, wireline and Internet Protocol systems, while protecting privacy. This is how your wireline office phone service supplier knows how to put a call through to your cell phone when you are in roaming territory. It is vital for the new Short Message Service features in 2.5G and 3G cell phones, and for Instant Messaging.

"This is not a cheap stock. It hit its all-time high at $20.625 the day it went public in May 1998, and it has been all downhill to less than 50 cents a share last summer. It’s been on a tear since then, climbing from $3.27 at the end of June to a recent 52-week high of $11.83. At that price, it had a total market cap of just $168 million, selling for 5.8 times the last 12 months’ revenues, and with a trailing P/E ratio of 26 times the last 12 months’ earnings of 46 cents a share. A federal appeals court denied a request by the carriers to delay wireless number portability, and with two months and a week to the deadline, stock traders’ interest in EVOL should increase rapidly. Buy under $12 for a quick move over $15. For now, set a stop at $9."

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