Date: Feb 3, 2025

By: Philip MacKellar

With an article regarding a top pick for 2025 in the bag, it is time to turn my attention to looking at how last year’s worked out. Ceragon Networks Ltd. CRNT-Q was my top pick for 2024. When the year ended, the company had gained 116.2 per cent, and the thesis had worked out well.

For those new to the name, Ceragon Networks is a play on 5G and other communication technologies, making wireless products and services that support wireless and cellular service providers. It is based in Israel, listed in the United States, and does business around the globe. In its latest quarter, for example, India accounted for 49 per cent of sales and North America made up 24 per cent. The remainder was split between Latin America, Europe/Africa, and Asia-Pacific.

Here at Contra the Heard Investment Newsletter, we first took a position in the name in late 2022. Our average purchase price was US$1.89, and in the year after we purchased it the shares were listless.

Despite being rangebound in 2023, positive catalysts were afoot, and the market had not recognized the change. Third-quarter 2023 revenue and net income, for example, clocked in at US$87.3-million and US$3.4 million, respectively, versus US$78.6-million and US$900,000 in the prior year. Not only did these figures reflect a vast improvement in the business, but the numbers exceeded analyst estimates.

Moreover, in December, 2023, the company completed the acquisition of privately held Siklu for an enterprise value of US$15-million. Siklu provides wireless fibre connectivity products and will expand Ceragon’s product offerings, especially to small service providers and private network customers. The deal was expected to increase 2024 revenue and improve margins. So far, it appears to have done just that.

Ceragon started 2024 strongly, signing a US$150-million deal with an Indian customer to modernize and update their network. Ceragon was in growth mode, and few analysts or investors had noticed. This lack of interest meant the shares were cheap. At the same time, the fundamentals of the business were solid. The balance sheet was healthy and insiders held a 9.9-per cent ownership stake. The organization was also seen as a potential benefactor from geopolitical tensions between Western democracies and Chinese rival Huawei.

Ceragon then built on this strong position as 2024 progressed. In the first half of the year, management announced they expected the company to reach its long-term growth targets a year early. Instead of achieving US$500-million in sales with gross margins between 34 and 36 per cent in 2027, the C-suite announced margins should be in the 35- to 38-per-cent range in 2026. For reference, 2023’s sales were US$347.2-million and gross margins were 34.5 per cent.

Companies generally push out long-term targets; pulling them forward by a year is unusual and bullish. Not only did the executive team accelerate its goals, but quarterly earnings consistently met or exceeded guidance and analyst estimates throughout the year. The 2024 profit and revenue forecasts were revised upward in the third quarter and the 2025 outlook sounds optimistic.

Finally, in the dying months of the year, the market started to recognize what was going on and the shares soared. The ticker started November at US$2.48 and ended December at US$4.67. This rally proved, once again, that price appreciation is rarely linear in the stock market.

To start off this year, we trimmed our stake in Ceragon by half at US$4.94. This translates into a capital gain of 161.4 per cent. By selling half, the portfolio is locking in gains, and we are acknowledging that the shares are no longer cheap. This said, there is still enough skin in the game to benefit from any further growth. The balance sheet remains strong, insider alignment with shareholders is still high, and the thesis underpinning the enterprise remains intact.

Shortly after we reduced our position, Ceragon announced that they have agreed to acquire a private U.S.-based software development company called End 2 End Technologies. Ceragon will pay US$8.5-million up front, with another US$4.3-million to come if certain milestones are reached. The deal should increase the company’s reach in the energy and utility sectors, generate US$15-million to US$19-million in annual revenue, and be non-GAAP earnings accretive in the back half of 2025. This deal looks smart as the valuations are low and the accretion is high. It is also small and will be a bolt-on transaction. This means it will not scupper Ceragon if the projected sales and income figures fail to materialize.

The stock has also been volatile since we trimmed our stake. Ceragon has hit highs of US$5.73 and lows of US$4.35; these swings are wild and may continue. Looking ahead, we are not anticipating another year like 2024 but think Ceragon Networks can grind higher as it works towards its 2026 goals and integrates acquisitions like End 2 End Technologies.