Tucows Inc. (TSX:TC)(NASDAQ:TCX), the world’s second-largest domain name registrar and one of North America’s leading providers of mobile phone and internet services, released record fourth-quarter and full-year earnings results this morning, but its stock has responded by plunging over 8% to open the day’s trading session.
The stock now sits more than 25% below its 52-week high of US$71.75 reached back in December, so let’s break down the fourth-quarter results, full-year results, and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity.
The record financial performance
Here’s a quick breakdown of eight of the most notable financial statistics from Tucow’s three-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Network Access Services revenues | US$25.15 million | $18.76 million | 34.1% |
| Domain Services revenues | US$65.47 million | US$30.05 million | 117.9% |
| Total revenue | US$90.62 million | US$48.81 million | 85.7% |
| Gross margin | US$25.74 million | US$16.42 million | 56.7% |
| Adjusted EBITDA | US$15.28 million | US$7.33 million | 108.3% |
| Net income | US$11.20 million | US$2.82 million | 297.6% |
| Basic net earnings per common share (EPS) | US$1.06 | US$0.27 | 292.6% |
| Net cash provided by operating activities | US$14.08 million | US$9.07 million | 55.3% |
And here’s a breakdown of six notable financial statistics from Tucow’s 12-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Fiscal 2017 | Fiscal 2016 | Change |
| Total revenue | US$329.42 million | US$189.82 million | 73.5% |
| Gross margin | US$84.52 million | US$63.05 million | 34.0% |
| Adjusted EBITDA | US$41.36 million | US$30.13 million | 37.3% |
| Net income | US$22.33 million | US$16.07 million | 39.0% |
| Basic net earnings per common share | US$2.12 | US$1.53 | 38.6% |
| Net cash provided by operating activities | US$31.90 million | US$22.51 million | 41.7% |
Stock-buyback program announced
In a separate press release, Tucows announced that its board of directors has approved a US$40 million stock-buyback program, and it will begin today and end on or before February 13, 2019.
Should you use the sell-off as a buying opportunity?
It was a phenomenal quarter overall for Tucows, highlighted by growth across all of its key financial metrics, and it capped off an incredibly strong year for the company, so I think the market should have responded by sending its stock significantly higher; that being said, I think the weakness represents a very attractive entry point for long-term investors, because the stock is now wildly undervalued based on its growth, as it trades at less than 25 times fiscal 2017’s EPS of US$2.12 and less than 17 times the consensus analyst estimate of US$3.19 for fiscal 2018.
Tucow’s stock has taken a beating since a short seller targeted it in January, but I simply cannot ignore the incredible growth the company is experiencing right now, so I would use the recent weakness as a long-term buying opportunity.
