Cogent Communications Holdings, Inc. (CCOI): A Bull Case Theory

We came crossed a bullish thesis connected Cogent Communications Holdings, Inc. connected Rorschach Stocks’s Substack. In this article, we volition summarize the bulls’ thesis connected CCOI. Cogent Communications Holdings, Inc.'s stock was trading astatine $22.55 arsenic of February 5th. CCOI’s trailing and guardant P/E were 94.04 and 5.00k  respectively according to Yahoo Finance.

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Cogent Communications Holdings, Inc., done its subsidiaries, provides high-speed Internet access, backstage network, and information halfway colocation abstraction services successful North America, South America, Europe, Oceania, and Africa. CCOI is simply a profoundly out-of-favor telecom infrastructure institution whose banal diminution masks a misunderstood translation communicative anchored by a resilient bequest ISP concern and a perchance almighty caller maturation engine.

Historically, Cogent operated arsenic a low-cost, no-frills net work supplier focused connected multi-tenant bureau buildings and bandwidth-heavy customers, earning a estimation for simplicity, accelerated installs, accordant borderline expansion, and dependable maturation implicit 2 decades. This halfway ISP concern was wide viewed arsenic precocious prime and regularly valued astatine 15–20x EV/EBITDA, providing a cardinal valuation level that helps bounds downside hazard today.

The inflection constituent came successful 2023 with Cogent’s acquisition of Sprint’s wireline web for a nominal $1, a woody that included 20,000 miles of fibre routes, information centers, invaluable IPv4 addresses, and aboriginal payments from T-Mobile. While strategically compelling, integration has been slower and much capital-intensive than initially expected, starring to antagonistic consolidated gross growth, higher leverage, a dividend cut, and a sharply compressed equity valuation. These issues person obscured advancement beneath the surface, wherever absorption has been actively pruning unprofitable customers, improving margins, and repositioning the acquired assets for growth.

The cardinal upside operator is Cogent’s “Wavelength” business, which monetizes owned long-haul fibre by selling dedicated, high-redundancy connections betwixt information centers. Management estimates a $2 cardinal North American marketplace increasing with AI-driven information request and believes a 25% stock is achievable owed to unsocial routes, heavy fibre placement, and faster installs. With incremental margins approaching 95%, adjacent mean gross occurrence could construe into important EBITDA.

Meanwhile, equilibrium expanse concerns look manageable done information halfway plus sales, increasing IPv4 lease income, dividend savings, and supportive recognition markets. If execution improves and Wavelength scales, Cogent offers asymmetric upside from existent levels, with a basal lawsuit implying meaningful rerating and a bull lawsuit that dramatically revalues the equity.