Shorting KNOL - Knology, Inc.

Description

Knology, Inc. (KNOL) is a provider of video, voice, data and advanced communications services to residential and business customers in nine markets in the southeastern United States. As of December 31, 2007, its network passed approximately 887,000 marketable homes, which are residential and business units passed by its broadband network that are listed in its database.

Knology in Trouble - Bankruptcy Looms?

Knology is in trouble, and will potentially face bankruptcy faster than you can say bankrupt. KNOL's current ratio (1.2) and quick ratio (1.2) indicate it will have serious trouble paying its bills and meeting short-term operating needs. And it's Altman-Z score of negative 0.27 indicates it could face bankruptcy sooner than investors may anticipate.

The Bears: Mounting Debt for Knology

Knology (KNOL) is losing money rapidly, and acquiring increasing amounts of debt at a time when it can't afford to. In its recent quarter, it moved to a loss despite a gain in its consumer base. Knology has done well with its triple play of video, voice, and data communications offerings, but it's a small player in an ever more competitive space. It has to contend with the likes of Comcast and Verizon grabbing market share, and during this recessionary environment, it can ill afford to lose more customers as cash flow tightens, profit margins narrow, and AR (accounts receivable) accumulate.

The Altman-Z indicator, a bankruptcy indicator, suggests that Knology will be facing Bankruptcy in the near future.

The Bulls: Moody's Upgrade and Cash Cushion

Moody's investor service recently raised its outlook on Knology to positive (from stable) following a report showing that Knology successfully integrated its recent acquisitions - PrairieWave and Graceba. According to Moody's, despite the credit crunch limiting the ability of Knology to make additional debt-financed acquisitions, it feels the company has enough of a cash cushion to meet its debt obligations in the near future.

The stock hast lost nearly half its value in the past year, providing a compelling buying opportunity for the non risk-averse investor.