Bandwidth Inc.

Bandwidth Inc. (NASDAQ: BAND) provides a cloud-based communications platform for businesses in the United States. Software application programming interfaces for voice and text capabilities and purpose-built internet protocol voice networks are among the company's products.

Why Should Investors Exit?

• Margins Stress: In FY21 (ended December 31, 2021), the company reported a gross margin of 44.5%, compared to the industry norm of 60.6%. The company further witnessed a continuous fall in gross margins from 47.1% in FY18 to 44.5% in FY21, indicating a substantial increase in the cost of revenues.
• Leveraged Balance Sheet: The company's debt/equity ratio was 1.18x as of December 31, 2021, compared to the industry median of 0.60x. In addition, its long-term debt-to-total-capital ratio was 54.1%, compared to 34.2% for the same period in the industry. The company's exposure to balance-sheet risk has increased due to this.
• High Cash Conversion Days: The company's cash conversion cycle deteriorates to 56.4 days at the end of December 31, 2021, from 29.9 days at the end of December 31, 2020, which implies that the company takes a more extended number of days to convert its services to cash.
• Increase in Accumulated Deficit: As of December 31, 2021, the company's accumulated deficit had climbed to USD 76.87 million, up from USD 49.51 million as of December 31, 2020. An increase in the accumulated deficit indicates that a company is not financially stable and may require an additional investment shortly.

Stock Recommendation:

At the current price level, BAND shares face resistance, and its 14-day RSI is ~ 28.12, indicating a bearish trend, indicating that it may be downtrodden to lower prices. As the company is witnessing continual decreasing margins, a leveraged balance sheet, a surge in accumulated deficit, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 46.48, down 8.38%, as of February 23, 2022.

One-Year Technical Price Chart (as of February 23, 2022). Source: REFINITIV, Analysis by Kalkine Group 

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.