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Network Engines: Worth a Second Look?

  • May 22, 2006

Towards the beginning of April, a InsideArbitrage subscriber asked me about Network Engines, Inc. (NENG) and I posted my thoughts about why it was prudent to stay away from Network Engines here. Since then Network Engines has lost close to half of its value falling from $3 per share to $1.65 after releasing disappointing quarterly results. Most of this steep loss in Network Engines occured before the recent worldwide carnage in the stock markets.

At its current market cap of $62.65 million, Network Engines just might be worth a second look. The company currently holds $33.7 million in cash and short-term investments on its balance sheet and the new management team headed by CEO Gregory A. Shortell (an ex-Nokia executive) looks promising. At its current cash burn rate of under $3 million a quarter, there is a good chance that the company will reach profitability over the next few quarters as its NS series product gathers steam. Network Engines still remains a speculative investment and there is a chance that the stock could head lower but at this point I feel that the potential rewards far outweigh the risks.

Voluntary Disclosure: I currently do not hold any positions in Network Engines but may start a long position soon.