A sound strategy within Mitel (NASDAQ:MITEL), coupled with a market demand for the telecommunications equipment it sells, has pushed stock prices to a two-year high, according to an analyst.
Mitel’s shares closed Thursday at $4.61 a share, down from a 52-week high of $5.08 on July 31. That’s up from $3.81 a share on July 12.
“The company has done a pretty good job of executing its channel strategies, and in fact has signed up some pretty decent-sized and important channels globally,” said Ron Shuttleworth, an analyst at MPartners.
“Those channels are now beginning to produce at scale, so what’s happening is (Mitel)’s gross margins are increasing at a relatively fast basis.”
Margins are now around 58 per cent compared with 47 per cent a few quarters ago, he added. Additionally, because the resellers allow for Mitel to contain its own expenses, the margins for earnings before interest, taxes, depreciation and amortization are increasing as well, Mr. Shuttleworth said.
Along with the channel strategy, Mitel has been winning back the confidence of investors since its initial public offering disappointed in 2010.
“MItel was left at the side of the road for a long time. People saw the company had an IPO that was too expensive, and they had a management team that had to be kicked out,” Mr. Shuttleworth said, referring to the 2010 resignation of CEO Don Smith amid wider company restructuring.
“Then after bringing in a new team, they had a stumble in Q1 2012 when they missed expectations. However, they did a good job of recovering from that, and that recovery is showing in their execution.”
Coupled with positive changes within Mitel, Mr. Shuttleworth said the broader telephony environment is also allowing for more purchases of the Ottawa firm’s equipment.
Employment in the United States, a large market for Mitel, is rising and there is therefore a demand for more telecommunications equipment as new employees are brought in.
“We think that Mitel has built a pretty good mousetrap as it relates to telephony,” Mr. Shuttleworth said. “They did a nice deal in partnering with VMware and building out a virtualized communications platform that can reside in the cloud.” Mitel has an advantage over competitor Avaya, he added, because Avaya’s cloud solution is not as robust.
Other customers, Mr. Shuttleworth said, are upgrading switch equipment that they wanted to change a few years ago, but chose to held off on because they wished to contain expenses in a poor economy.
All of these factors, he said, are inviting investors to look again at Mitel and other tech stocks when looking to make money.
“Investors are interested more now in growth stories than they were in commodity stories or dividends,” he said. “They’re looking at growth and dividends. Pure growth.”