J2 Global (JCOM) is a Buy

I bought into this bad boy last March at $22.00 and it is now hovering around $37.00. While not as cheap now as it was back then, its valuation is still compelling. I would still buy it for my Grandmother. Take a look at its most recent earnings release. For those not acquainted with the company, look at the faq on its IR site.

What to like about the company:

1) It is the dominant, worldwide player in an emerging industry. The potential market size is huge.

2) Zero debt.

3) Strong cash position (~ $65M), w/recurring free cash flow of more than $10M each quarter. EV/FCF of 18.5, which is excellent considering the rate at which this company is growing.

4) Institutions are buying.

5) Patent-protection, finite number of DID numbers limit entry. Other competitive advantages include JCOM's business model/marketing structure and economies of scope as JCOM is a worldwide provider of a variety of communication-related business services.

6) Extremely high, solid margins. J2 successfully raised prices in late 2003 with a short-lived, marginal increase in churn.

7) The company gave 2005 guidance of $1.70 - $1.75 per share, giving JCOM a forward P/E of ~21 and a forward P/S of 6. Doesn't seem like a screaming bargain until you realize that some analysts see JCOM growing at a 35% compound annual rate for the next five years. JCOM's trailing PEG is ~0.55.

8) Scalable business model where an increasing % of each marginal dollar of revenue flows down to the bottom line.

9) There is a large, misguided short contingent that will aid the stock price as J2 continues its record of excellence.

For more detailed analysis refer to the shareholder-created website JCOMtalk.

Full disclosure: I am long JCOM.