A Cogent Argument Peter C. Beller, 01.19.10, 03:40 PM EST Can investors get as much of a bargain from the low-price telecom as its customers do? Cogent Communications Group, Inc. 01/26/2010 2:14PM ET * $10.98 * -$0.52 * -4.52% * At A Glance * Chart * News * People Full CCOI Chart at BATS Real-Time Market Data by Xignite Can investors lower their phone bills and make a bundle at the same time? Cogent Communications has built a modest business by making a mockery of big telecoms' prices. But a sustained profit has been elusive, not surprising for a small company that boldly competes with behemoths on price. That might change in the next few years as Cogent accelerates its pace of signing up business customers fed up with poor service and high prices from the world's telecom oligopolies. Citigroup analysts think Cogent shares will rise substantially as the firm's rapid sales growth translates into free cash flow in the years ahead. Cogent ( CCOI - news - people ), born a decade ago, got its start sifting through the cinders of the tech crash, buying up a large network of fiber optics for a pittance. Having paid so little for its network, Cogent chose to undercut bigger, older telecoms on price, sometimes by 90%. That has angered many competitors and led to a dozen squabbles that have occasionally burst into public view with subscribers losing access to chunks of the Internet. It's usually Cogent's competitors that eventually back down. (See “Telecom Knockout.”) Article Controls Emailemail imageprint imagereprint imagenewsletter imagecomments imageshare imagedel.icio.us imageDigg It! imageyahoo imageFacebook imageTwitter imageReddit imagerss Yahoo! Buzz The strategy has worked well enough. Cogent's sales grew from $135 million in 2005 to $216 million in 2008. Operating income, which excludes taxes, interest and non-cash charges, turned positive last year, as did net profit. Citigroup analyst Michael Rollins thinks sales will accelerate as the economy recovers and Internet traffic, and its associated costs, picks up. That means Internet-focused companies that put off investing in their communications networks during the financial panic will start to spend again. There are plenty of risks for investors to watch out for. Cogent has made big promises and the market has accorded the stock a certain level of enthusiasm. For the 2010 fiscal year Cogent's managers told Wall Street they expect sales to grow by 15% to 20%. Analysts are predicting 11%, though Rollins is more optimistic than his colleagues. Capital investment is also a question for investors. Cogent was savvy enough to build a network for pennies on the dollar, but new technology may come along that requires an expensive upgrade. That would prohibit Cogent from becoming the cash cow shareholders are hoping for. There are plenty of things to like, too. Cogent has relatively little debt and is growing rapidly. Collins predicts earnings before interest and taxes will soar from $3 million in 2009 to $40 million in 2011. The company's shares lost two-thirds of their value in the financial crisis and are cheaper than they were five years ago, when Cogent had a smaller, less-profitable business. Collins thinks Cogent shares could be worth $16, a 35% premium to Tuesday's price.