Pareteum (TEUM) is feeling the heat right now after Viceroy Research piled on to the criticisms issued last month by short-seller Aurelius Value. Its stock is down 20% as investors digest the scathing research that likened the company to the “Wild West of telecoms.” The report centered around what Viceroy considers a history of “promotional press releases,” artificially boosted backlog metrics, and an accusation that Pareteum breached US sanctions against Iran.
The accusation that Pareteum breached sanctions against Iran stems from the company’s contract with an Iranian-based mobile virtual network operator called Amin SMC. Viceroy stated that Amin SMC’s chairman, Hamid Reza Amirinia, laundered money for the Iranian government which of course is a breach of US sanctions. Viceroy concluded that “Pareteum is likely in ongoing violation of US sanctions, [and] at worst they are facilitating a money laundering scheme.” Although the circumstances look bad for Pareteum, the report stated that Viceroy was “not able to find a Pareteum subsidiary in Iran so far.”
Another key aspect of the Viceroy report is criticism about Pareteum’s practice of publishing contracts with entities that Viceroy believes have no chance of paying for Pareteum’s service. Pareteum has a 36-month contractual backlog measurement, and Viceroy believes it is not a good predictor of future profits. Viceroy accused Pareteum of not reporting a significant amount of Q1 revenue to assure investors that their backlog is mostly recoverable, in contrast to Viceroy’s belief that most of the revenue is uncollectible.
Two weeks ago, Pareteum CEO Hal Turner responded to the first short-sellers report, which allowed Pareteum’s stock to recover from its drop. This report appears to be more damning and inflammatory, with Viceroy stating that there is a potential downside of 44% to 76% in the stock from the close price on June 25th.
However, Northland analyst Michael Latimore believes TEUM stock remains a strong buy, as he reiterates an $8.50 price target, which implies nearly 325% upside from current levels. (To watch Latimore’s track record, click here)
Latimore met with Pareteum’s senior managers, customers and partners at the trade show International Telecom Week this week. The analyst came away more confident in TEUM’s value proposition, industry experience, market opportunity and traction.
“Several senior managers and sales people attended the event. We believe they met with about 50 customers and prospects, large to small. Large operators seek ways to quickly launch or enable new services, and the TEUM platform can do that as it did at Vodafone. Smaller operators may want to develop a service and get to market quickly. Based on our checks, TEUM is getting substantial traction. Also, several UK and Brazilian customers are going live this summer, giving more visibility into continued strong revenue growth,” Latimore wrote.
TipRanks’ data shows a bullish camp backing this cloud software company. The ‘Strong Buy’ stock has amassed 5 ‘buy’ ratings in the last three months, with no ‘sell’ or ‘hold’ ratings. The 12-month average price target stands tall at $8.00, marking 300% in return potential for the stock. (See TEUM’s price targets and analyst ratings on TipRanks)