Mark Perkins sends: Sycamore (SCMR) develops and markets optical networking products for telecommunications service providers worldwide. They make intelligent bandwidth management products, optical switches, multiservice cross-connects, access platforms, and access gateways.

At a market cap of $1.14 Billion, or $4.05 per share, the stock is almost selling for its net current assets of $903.85 million. Net current assets is calculated by taking current assets and subtracting all liabilities. What is so special about this form of valuation you ask? These current assets are the most liquid(easily converted to cash) and are a rough liquidation value. Typically, companies in financial distress or that have very weak prospects trade below this level. They mostly aren’t companies like Sycamore, which is piling up cash and has total assets of just over $1 billion and total liabilities of only $60 million. They also have just $1.6 million in long-term debt. This company isn’t seeing financial trouble any time soon.

Revenue growth has been really good, with the company growing 78% for the year ending July 2007. Sprint Corporation (S) and Vodafone Group (VOD) accounted for 53% and 16% of revenues, respectively. Sycamore has generated some nice free cash flow with $18 million in FCF last fiscal year and $19 million in 2006, both improvements from a small loss in fiscal 2005. Their balance sheet is flush with cash! They have cash and cash equivalents of $924.8 million as of July 31, 2007.

Last fiscal years’ loss in net income was related to their acquisition of Eastern Research, for which Sycamore paid $80 million all in cash. This should be a temporary set-back as earnings are expected to come in at $.15 a share this year and $.18 next year putting the stock at a forward PE multiple of 22. They are expected to grow at 15% a year going forward, as the purchase of Eastern Research will allow them to diversify, increase revenue and grow their customer base.

Companies this solid with discounts to asset values don’t come around to often. This company is worth picking up and adding to a diversified portfolio below its net current asset value of $3.22 per share.

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