The past 12months have been tough forSpirent Communications(LSE: SPT). The company has struggled to make headway after reorganising its operations earlier this year andas usual, the market has not beenprepared to wait for the companys turnaround to take shape.
Nevertheless, after recent declines Spirent looks to be an attractive investment for many different reasons here are three.
Net cash balance
It may seem silly to say but one of Spirents most attractive qualities is the companys current cash balance.
You see, something thats often overlooked when investing is the importance of a companys cash flow and resulting cash balance. Spirent had a strong cash balance of $168.4mat 30 June 2014, after spending a combined total of $68m on acquisitions, share buybacks and dividends during the first six months of the year. A free cash flow of $19.1m during the period helped fund acquisitions.
Withthis strong free cash flow and net cash balance, Spirent has room to execute managements growth strategy and continue to pay a dividend during the process. Further, the stock buybacks will help boost earnings per share growth when business picks up.
The telecommunications market is well known for its defensive nature. Indeed, most portfolios will have a telecoms stock in situ somewhere as their defensive nature and predictable cash flows support hefty dividend payouts.
As aleading communications technology company, specialising in the testing andmeasurement ofinformation technology communication devices, Spirent is no different. In other words, Spirent is the company that makes sure everything works the way it should do.
For this reason the company is set to benefit from the trend of outsourcing key services by major providers to reduce costs. And the group is also likely to benefit from the rise of the Internet of Things, as device connectivity increases.
Spirent changed strategy earlier this year. The company has made mistakes in the past, under investing in key technologies, whichresulted in competitors gaining the upper hand over the company. So,with a new management teamin place, Spirent set outthis year to change for the better and align itself with key technologies.
Spirent is now focused onareas where it holds a leading niche,such as Network Testing, new 4G testing opportunities and live network monitoring. Further, the company has reorganised its internal working environmentwith a view to unleashing a more innovative, creative approach to solving problems.
Unfortunately, due to the rapidly changing face of the telecommunications industry, Spirents new strategic plan has not started to pay dividends yet. However, the telecommunications industry is going through a period of consolidation, which is why orders are being delayed and postponed.
Plenty of room to grow
All in all, with its strong balance sheet and reorganisation, Spirent is well placed to grow over the long term when the wider telecommunications industry returns to growth. And if you’re looking for capital gains, then you’re in luck.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Spirent Communications. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.