Last update on 2024-06-07

Cogent Communications Holdings (CCOI) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Piotroski F-Score analysis of Cogent Communications Holdings (CCOI) in 2023 reveals a score of 4/9, indicating moderate financial health.

Short Analysis - Piotroski Score: 4

We're running Cogent Communications Holdings (CCOI) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is used to evaluate a company's financial strength, based on nine criteria involving profitability, liquidity, and leverage. Cogent Communications Holdings (CCOI) scored a 4 out of 9 on the Piotroski scale for 2023, indicating several mixed signals about its financial health. Profitability: The company has shown positive net income and cash flow from operations, with an increasing return on assets over recent years. However, operating cash flow is significantly lower than net income, reflecting potential issues with cash generation. Liquidity: The leverage ratio has improved, indicating better debt management, but the current ratio has decreased, raising potential liquidity concerns. Additionally, the issuance of new shares could dilute shareholder value. Operating Efficiency: Gross margin and asset turnover ratio have both declined, indicating reduced operational efficiency and profitability.

Insights for Value Investors Seeking Stable Income

Based on a Piotroski score of 4, Cogent Communications Holdings (CCOI) presents a mixed view to potential investors. While the company shows some positive trends in profitability and leverage, concerns about cash generation, asset efficiency, and share dilution affect its overall attractiveness. Investors should perform further due diligence before considering an investment, especially focusing on liquidity and operational efficiency.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Cogent Communications Holdings (CCOI)

Company has a positive net income?

Net income reflects a company's profitability over a specific period. Positive net income indicates that a company is generating more revenue than expenses, an essential indicator of financial health and operational success.

For 2023, Cogent Communications Holdings (CCOI) reported a net income of $1,273,441,000, which is significantly positive. Observing the trend over the past 20 years, CCOI's net income has fluctuated notably, from highs of $140,743,000 in 2003 to a major drop of -$89,660,000 in 2004. However, the consistent increase in net income in recent years, notably 2023's robust figure, underscores an upward trajectory in profitability. This trend is favorable for investors and signals strong management and operational efficiency.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) indicates a company's ability to generate enough cash from its routine business operations to maintain and grow operations.

For Cogent Communications Holdings (CCOI), the CFO in 2023 stands at $17,345,000, which is positive. This is a critical factor for the Piotroski F-Score as a positive cash flow from operations is indicative of sound business practices and a strong ability to generate internal funds. Over the last 20 years, CCOI has shown a consistent ability to generate positive CFO since 2006, following a trend of improvement. Thus, for the 2023 analysis, adding 1 point for positive Cash Flow from Operations (CFO) is well justified, reflecting a favorable trend.

Return on Assets (ROA) are growing?

Return on Assets (ROA) is a critical measure of a company's profitability relative to its total assets. It indicates how effectively management is using the company’s assets to generate earnings. For Cogent Communications Holdings, a better ROA in 2023 compared to 2022 indicates improved efficiency and profitability.

The ROA for Cogent Communications Holdings (CCOI) improved significantly from 0.0052 in 2022 to 0.6033 in 2023. This remarkable increase suggests enhanced management and operational efficiency, making better use of its assets to generate earnings. Looking at additional historical data - for example, the operating cash flows from 2003 to 2023 - helps to visualize that such an increase is not an isolated incident but part of a longer positive trend. Furthermore, comparing this ROA to the industry median, which is 0.6122 for 2023, shows that Cogent's ROA is competitive within its industry. The increase in ROA is a positive trend, awarding it a score of 1 in the Piotroski analysis.

Operating Cashflow are higher than Netincome?

This criterion assesses whether a company's operating cash flow exceeds its net income, indicating healthy cash generation.

For 2023, Cogent Communications Holdings (CCOI) reported an operating cash flow of $17,345,000 and net income of $1,273,441,000. Since the operating cash flow is significantly lower than the net income, this results in a score of 0. This is a negative indicator in the Piotroski analysis because it suggests that the company's net income is not being backed up by corresponding cash flows, which could be due to accounting accruals.

Liquidity of Cogent Communications Holdings (CCOI)

Leverage is declining?

Change in leverage measures the company's degree of financial risk by comparing debt to equity ratio over periods.

The leverage for Cogent Communications Holdings (CCOI) has notably decreased from 1.3125 in 2022 to 0.528 in 2023. This signifies a substantial reduction in financial risk and implies improved debt management. This shift can be affirmed with 20-year historical leverage data, visibly showing leverage rarely dipping below 0.5. This positive decline in leverage contributes to a higher Piotroski score, adding 1 point as per the criterion, reflecting increased financial stability and potential attractiveness to investors.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with short-term assets. It is important as it indicates the company’s short-term financial health and efficiency.

The Current Ratio for Cogent Communications Holdings has decreased from 3.0421 in 2022 to 1.3758 in 2023. This is a significant decline which might indicate potential liquidity issues. The industry median for 2023 is 0.9574, so while CCOI's current ratio is above the industry median, the decline itself is not a good sign. Historically, the company has had high current ratios, notably above the industry median, but this sharp decrease could be a red flag. For Piotroski Analysis, since the ratio decreased, we set this criteria's score to 0.

Number of shares not diluted?

Change in Shares Outstanding examines if the company is issuing or buying back shares. An increase may dilute shareholder value, while a decrease can signify confidence.

For Cogent Communications Holdings (CCOI), the outstanding shares increased from 46,875,992 in 2022 to 47,373,361 in 2023. This increase suggests that the company issued more shares, possibly for raising capital or funding expansions. Over the past 20 years, the trend shows variability, with the number of outstanding shares fluctuating though generally increasing. This trend can be a concern for existing shareholders due to potential dilution of their shares’ value. Thus, for this criterion, CCOI scores 0.

Operating of Cogent Communications Holdings (CCOI)

Cross Margin is growing?

Gross margin is a measure of a company's manufacturing and distribution efficiency during the production process. It is calculated by dividing gross profit by total revenue. The gross margin ratio is a metric that gives insight into the business’s ability to generate profit compared to its costs.

Cogent Communications Holdings (CCOI) witnessed a significant decline in its gross margin from 0.6195 in 2022 to 0.4216 in 2023. This decline reflects a decrease in profitability and efficiency in production, setting the metric to 0 in the Piotroski score for this criterion. Historical data over the past 20 years shows varied performance with gross margins peaking around the mid-2010s but generally staying above 0.56, thus aligning often closely or above the industry median which reported a median gross margin of 0.6122 in 2023. The noticeable slump in CCOI's recent gross margin underscores some operational or cost-related challenges impacting the company's ability to maintain previous efficiency levels.

Asset Turnover Ratio is growing?

Asset Turnover ratio is a measure of how efficiently a company uses its assets to generate sales. It provides insight into the company's operational efficiency.

Comparing the data, Cogent Communications Holdings' Asset Turnover ratio has decreased from 0.6012 in 2022 to 0.4457 in 2023. This indicates a decline in the efficiency with which the company is using its assets to generate revenue. Historically, the company's Asset Turnover has fluctuated, with peaks in 2009 (0.671) and 2018 (0.7173). The recent drop to 0.4457 is significant and raises concerns. Therefore, no point is awarded for this criterion.