Should you buy Vocus Communications Limited today?

Vocus Communications Limited (ASX:VOC) has completed its merger with Amcom Telecommunications Limited (ASX:AMM), while its shares have slipped considerably in price.

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The merger between Vocus Communications Limited (ASX: VOC) and Amcom Telecommunications Limited (ASX: AMM) is officially complete and the newly-combined entity is ready to take on the market’s heavyweights.

The deal, which TPG Telecom Ltd (ASX: TPM) desperately tried to block, became official on 23 June when approved by the Federal Court of Australia while the pair tied the knot on Wednesday last week. Vocus issued over 124 million new shares as part of the deal with the company now boasting a market capitalisation of $1.24 billion, according to Google Finance.

Although the merger is expected to create strong synergies between the two groups, investors might be wondering why the stock has come under such selling pressure recently. Indeed, Vocus’ shares closed on Monday at $5.37, which is down 13.4% since mid-May and 18.5% since late December, heavily underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over both periods.

Aside from the merger, there hasn’t been any other notable updates such as an earnings downgrade or loss of management that would explain the fall. Indeed, no news is normally good news, and I certainly believe that to be the case in this instance as well.

Before you begin to worry why your shares might be falling, there are a number of possibilities.

To begin with, the market as a whole has been volatile in recent times – largely as a result of Greece’s ‘debt crisis’, and China’s stock market meltdown – so it’s possible the stock has simply been sold off in the process. The likelihood of this is increased by the fact that the stock is trading on a price-earnings ratio of 33x last year’s earnings, which is a significant premium to the market’s average.

It’s also possible that investors are questioning how effective the synergistic benefits of the tie-up will be, and whether the two companies will merge together as seamlessly as first anticipated. While I believe they will, investors want to be certain – especially when the stock is trading at such a premium to the market, as highlighted above.

Although it isn’t ‘cheap’, investors could certainly look to the recent selloff of Vocus’ shares as an opportunity to begin building a position in the stock. As an addition, there are plenty of stocks I believe investors should also take a look at in light of the market’s recent volatility – many of which could generate fantastic shareholder returns from today’s prices.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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