This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

January 7, 2011 - Knology, Inc. (KNOL-NASDAQ) provides video, voice, data, and advanced communications services to residential and business customers in the southeastern and midwestern United States. It offers approximately 200 channels of digital cable TV, local, and long distance digital telephone service with enhanced voice messaging features, and high-speed Internet access, which enables consumers to download video, audio, and graphic files using a cable modem.

Its video services also include digital cable service, HD channels, and premiums, which include channels of digital programming, basic cable service, and music channels, as well as high definition TV, digital video recorder, video-on-demand, and subscription video-on-demand; and premium channels, such as HBO, Showtime, Starz, Encore, and Cinemax, which provide commercial-free movies, and sports and other special event entertainment programming.

The company's voice services consist of local and long-distance telephone services comprising local area calling plans, flat-rate local and long-distance plans, and measured and fixed rate toll packages based on usage. It also provides business voice and data, broadband carrier, and high-speed Internet access services. The company provides services over its wholly owned 750 MHz interactive broadband network. As of December 31, 2009, its network passed approximately 932,834 homes and had approximately 693,871 total connections. The company was founded in 1995 and is based in West Point, Georgia.

The story here is earnings. They're finally positive. 2010 should have finished with 56 cents according to the consensus from 6 analysts (range is 47 cents to 60 cents). Last year, they were negative 9 cents. The year before that negative 34 cents. In 2007, they finished at minus 71 cents. You can see this is a positive trend. For 2011, analysts think the total will be $1.31 (the range is $1.10 to $1.68). Earnings rising this fast are hard to find, especially in this economy.

The company just added to itself, picking up a Georgia-based cable company (Sunflower Broadband (SB)) for $165 million. It provides triple-play services (cable tv, phone, Internet) to about 30,000 subscribers in the college town of Lawrence, Kansas. Expect the addition to add $54 million in revenues in 2011 (total sales projected to be $526 million, up from $460 million in 2010). Look for $23 million more in operating income from the purchase. Expansion potential for the new addition looks good, especially in the Small to Medium Business (SMB) sector where Knology currently has about 15% of its services. SB only has about 7%.

More numbers: Trailing P/E is 43 but Forward P/E is 11.8. Price to sales is 1.29. Price to book is negative since book value is minus 14 cents. Profit margin for the last 12 months was 3.07% while Operating margin was 13.00%. Return on Equity was still negative. Return on Assets was 5.5%. There's $91.52 million in cash or $2.47 a share. Total debt is $594.99 million. Current ratio is 1.67. Beta is 1.75. The stock is up 39.62% in the last year. There are 37.10 million shares outstanding with a Float of 26.34 million. Insiders own 22.23%. Institutions have 67.70% of the Float. There is no dividend.

Two things to note: service, right now, comes from cable. But increasing competition is coming from Web video so at some point TV programs may be watched more often on computers than tv's and that could mean lower revenues. Secondly, bad debts spiked when government assistance checks stopped for a short while. The good news is that customers have strong attachment to their services and will cut the cable only when they don't have any money. The bad news is that unless employment picks up, there could be a loss in subscribers as welfare payments do stop.

Aggressive investors will like this story. The earnings are there, with plenty more projected. New markets will open as the company expands and fills in where it currently serves. With strong cash flow, management can shop for new acquisitions. There's a lot of good here.

- Company Web site: www.knology.com

- Ted Allrich