What Happened?
Shares of internet service provider Cogent Communications (NASDAQ: CCOI) fell 14% in the afternoon session after it reported weak second-quarter results that missed Wall Street's expectations for both revenue and earnings. The company's revenue fell 5.5% year-over-year to $246.2 million, while its loss per share of $1.21 was nearly 30% worse than analysts had anticipated. The disappointing results highlighted several underlying issues for investors. Cogent's cash burn worsened, with the company using $100.2 million in cash during the quarter, a significant increase from the same period last year. Furthermore, the report pointed to a concerning balance sheet, with over $2.3 billion in debt compared to just $306.7 million in cash, raising questions about the company's financial stability.
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What Is The Market Telling Us
Cogent’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. But moves this big are rare even for Cogent and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 7.5% on the news that the major indices fell further in the afternoon (Nasdaq -1.3%, S&P 500 - 1.4%) as Treasury yields rose, reflecting market anxiety over a draft federal budget that could worsen the already wide US fiscal deficit. A poor auction for 20-year U.S. Treasury bonds further raised concerns, as weak demand implies investors are becoming more cautious about holding long-dated U.S. debt. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates (yields), investors can apply higher valuations to their stocks; when yields rise, that math works in reverse. Adding to the cautious mood were earnings results from retail giants Target and Lowe's, both of which reported weak earnings that missed expectations, pointing to a potential slowdown in consumer spending and further weighing on sentiment. Lastly, some influential voices such as Jamie Dimon (JPMorgan) and Steve Cohen (Point72) have made cautious comments about market, which can sometimes become self-fulfilling prophecies as investors increase their cautiousness and skittishness.
Cogent is down 61.2% since the beginning of the year, and at $29.90 per share, it is trading 65% below its 52-week high of $85.35 from November 2024. Investors who bought $1,000 worth of Cogent’s shares 5 years ago would now be looking at an investment worth $428.18.
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