Citron Research Says Cbeyond's (CBEY) Should Fall By More Than 60%

July 7, 2009 1:13 PM EDT

Citron Research, a noted bear, just published an extremely bearish report on Cbeyond (Nasdaq: CBEY). Below are some of the interesting excerpts from Citron's write-up on Cbeyond.

Citron believes the growth story the company wants Wall St. to believe is pure fiction. Adjust it to reality, and you have a low-or-no-growth company with sustainable market presence in only 3 or 4 cities, selling for a PE of over 100. From this precarious point, the stock could fall by 2/3rds and still be seriously overpriced.

• Citron believes CBEY is a single digit stock for the following reasons:
  
  1. Tracking of market penetration in newer cities is lagging disastrously far behind Cbeyond’s original “big 3″.
     
  2. Competitive forces have been mounting steadily and now present a totally different landscape than when Cbeyond established its presence in its lead cities a decade ago.
     
  3. Increasing churn rates. Probably the single most toxic statistic to Cbeyond is “churn rate” - the rate at which it loses existing customers.

Citron concluded by saying, "We believe customer satisfaction and looming legal issues warrant further coverage. But the points raised here should be sufficient to raise critical questions about a company with a trailing-twelve-month PE of 150, which runs a narrow business model facing increasingly commoditization with competition from the big boys of telecomm and cable."

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