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3 Reasons to Sell CCOI and 1 Stock to Buy Instead

By Petr Huřťák | July 31, 2025, 12:02 AM

CCOI Cover Image

Cogent’s stock price has taken a beating over the past six months, shedding 37.6% of its value and falling to $47 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Cogent, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Cogent Not Exciting?

Even though the stock has become cheaper, we're cautious about Cogent. Here are three reasons why there are better opportunities than CCOI and a stock we'd rather own.

1. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Cogent’s margin dropped by 37.5 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Cogent’s free cash flow margin for the trailing 12 months was negative 20%.

Cogent Trailing 12-Month Free Cash Flow Margin

2. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Cogent’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Cogent Trailing 12-Month Return On Invested Capital

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Cogent burned through $203.7 million of cash over the last year, and its $2.07 billion of debt exceeds the $184 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Cogent Net Debt Position

Unless the Cogent’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Cogent until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Cogent’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 6.4× forward EV-to-EBITDA (or $47 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Cogent

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