One Year Ago in the Investor Advisory Service: Neustar, Inc.
Posted on Thursday, January 26, 2012
In the February 2011 issue of the Investor Advisory Service we recommended Neustar, a telecom infrastructure company. This midsized company had revenues in 2010 of $526.8 million, and has grown earnings per share at an annualized rate of 19.4% since 2003. How have the company and its stock performed in the year since it was recommended?
Dust off your old notes because this month’s review of a stock we recommended one year ago in our award-winning newsletter, the
Investor Advisory Service, begins with a pop quiz. The subject is microeconomics. Each of the questions has to do with the investment story behind one of the stocks we highlighted in February 2011.
1) What term describes an industry in which it is most cost-efficient for a single firm to provide all the industry output?
2) The managers of a growing business discover that the more customers the business adds, the cheaper it becomes to add new products to sell. What type of “economies” is the business benefiting from? (Hint: not “economies of scale,” but close.)
Just one more question:
3) Assume the market price for a company's shares follows the normal laws of supply and demand. A company suddenly reduces its total shares outstanding by 10%. Demand remains unchanged. Should the company’s price go up, go down, or remain unchanged?
Solutions follow below. Let's look at a company whose investment case springs straight from the pages of an economics textbook. In February 2011, we profiled NeuStar, Inc. (Ticker: NSR) in the Investor Advisory Service. The telecom infrastructure company exhibited a history of steady growth, as well as attractive cash flows and a reasonable valuation. At the time of our profile, shares traded at 27.84. At a recent price of 34, the stock is up 22% since the time of selection. The S&P 500 is down 3% over the same period, although total returns for the market are closer to zero, including dividends.
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