Is Cogent Communications Stock Built to Withstand More Downside?

Cogent Communications (CCOI) stock is down 10.3% in a day. The recent slide reflects concerns over CCOI’s declining cash flow, high debt, and analyst downgrades, but sharp drops like this often raise a tougher question: is the weakness temporary, or a sign of deeper cracks in the story?

Before judging its downturn reslience, let’s look at where Cogent Communications stands today.

• Size: Cogent Communications is a $880 Mil company with $988 Mil in revenue currently trading at $18.49.
• Fundamentals: Last 12 month revenue growth of -6.5% and operating margin of -12.7%.
• Liquidity: Has Debt to Equity ratio of 3.01 and Cash to Assets ratio of 0.05
• Valuation: Cogent Communications stock is currently trading at P/E multiple of -4.5 and P/EBIT multiple of -9.4

These metrics point to a Very Weak operational performance, alongside Very Low valuation – making the stock Unattractive.

That brings us to the key consideration for investors worried about this fall: how resilient is CCOI stock if markets turn south? While we like to buy dips when the fundamentals check out (see Buy or Sell CCOI Stock) – we stay wary of potential falling knives.

This is where our downturn resilience framework comes in. Suppose CCOI stock falls another 20-30% to $13 – can investors comfortably hold on? Turns out, the stock has fared worse than the S&P 500 index during various economic downturns, based on (a) how much the stock fell and, (b) how quickly it recovered. When markets turn, single-asset exposure hurts. Smart financial advisors protect client wealth by working with partners who allocate across multiple asset classes – including the High Quality Portfolio.

Below are the details, but before that, as a quick background: CCOI provides high-speed Internet, private network, and data center colocation services across six continents, operating 54 data centers and serving thousands of buildings globally.

2022 Inflation Shock

• CCOI stock fell 38.7% from a high of $80.27 on 16 November 2021 to $49.18 on 12 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 28 February 2024
• Since then, the stock increased to a high of $85.35 on 7 November 2024 , and currently trades at $18.49

 
2020 Covid Pandemic

• CCOI stock fell 40.0% from a high of $90.11 on 31 July 2020 to $54.09 on 6 November 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high

 
2018 Correction

• CCOI stock fell 24.4% from a high of $56.10 on 18 September 2018 to $42.40 on 24 December 2018 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 10 April 2019

 
2008 Global Financial Crisis

• CCOI stock fell 89.9% from a high of $34.61 on 19 July 2007 to $3.51 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 18 October 2013

 
It is a good thing to keep in mind how low CCOI could go during a downturn. And you should also check how the stock fared when compared with the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.