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The Market's Biggest Q2 Winner (RCCC)
Shares in Rural Cellular (Nasdaq: RCCC) rose 266% in the second calendar quarter. The company is a very small provider of wireless communications services primarily to rural markets. What happened?
Rural Cellular's Huge Year
Rural Cellular did not just do well in the second quarter. The shares now trade at over $43 against a 52-week low of just above $6. The previous year, the shares went nowhere.
The company's business has been fairly flat at $140 million per quarter. Over the last four quarters, operating income has averaged about $21 million.
An Unlike Industry Does Well
Stanford Research recently downgraded Rural Cellular, but that has hardly interrupted its move up. And, the explanation for the company's rise may have more to do with the industry segment (wireless service), than with the fundamentals of the company itself.
Two other public companies that provide wireless service in areas not covered by giants AT&T (NYSE: T), Verizon (NYSE: VZ), and Sprint (NYSE: S) were recently purchased for substantial premiums. One of these companies Dobson Communications (Nasdaq: DCEL), was bought by AT&T. Dobson's stock price has almost doubled over the last year, mostly due to takeover speculation. The other company, Alltel (NYSE: AT), was bought by private equity interests. But, its shares are up only 28% for the year.
Smart Financial Moves
Rural Cellular recently raised capital to pay off its 11.38% senior subordinated debentures. The company had $115 million of this debt. In theory, this improves the company's balance sheet. But, on the profit and loss side side, revenue in the first quarter rose from $133 million last year to $140 this year. Operating profits moved up from $24 million to almost $37 million. The numbers are fairly good, but they hardly seem to support a share price that has almost tripled in three months.
A Balloon?
The only reasonable explanation for the increase in the Rural Cellular share price is that it sits in an unusual part of the telecom market where there are very few companies. Now that cellular growth in most large urban areas is peaking, looking to less densely populated areas may have a financial appeal.
But, with the buyout premiums on Dobson and Alltel being modest, keeping its share price up may be impossible for Rural Cellular.
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Rural Cellular's Huge Year
Rural Cellular did not just do well in the second quarter. The shares now trade at over $43 against a 52-week low of just above $6. The previous year, the shares went nowhere.
The company's business has been fairly flat at $140 million per quarter. Over the last four quarters, operating income has averaged about $21 million.
Stanford Research recently downgraded Rural Cellular, but that has hardly interrupted its move up. And, the explanation for the company's rise may have more to do with the industry segment (wireless service), than with the fundamentals of the company itself.
Two other public companies that provide wireless service in areas not covered by giants AT&T (NYSE: T), Verizon (NYSE: VZ), and Sprint (NYSE: S) were recently purchased for substantial premiums. One of these companies Dobson Communications (Nasdaq: DCEL), was bought by AT&T. Dobson's stock price has almost doubled over the last year, mostly due to takeover speculation. The other company, Alltel (NYSE: AT), was bought by private equity interests. But, its shares are up only 28% for the year.
Smart Financial Moves
Rural Cellular recently raised capital to pay off its 11.38% senior subordinated debentures. The company had $115 million of this debt. In theory, this improves the company's balance sheet. But, on the profit and loss side side, revenue in the first quarter rose from $133 million last year to $140 this year. Operating profits moved up from $24 million to almost $37 million. The numbers are fairly good, but they hardly seem to support a share price that has almost tripled in three months.
A Balloon?
The only reasonable explanation for the increase in the Rural Cellular share price is that it sits in an unusual part of the telecom market where there are very few companies. Now that cellular growth in most large urban areas is peaking, looking to less densely populated areas may have a financial appeal.
But, with the buyout premiums on Dobson and Alltel being modest, keeping its share price up may be impossible for Rural Cellular.
Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!
by
Douglas McIntyre
Douglas A. McIntyre is the editor of 24/7 Wall St., a financial commentary site. He has been president of Switchboard.com, which was the 10th most visited website in the world, and publisher of Financial World Magazine. He has served on the board of TheStreet.com. McIntyre graduated from Harvard magna cum laude.
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