Stock Pick of the Week: Pervasive Software (PVSW)
When I posted in September on GBLX and MFNX, I stated that I thought both stocks were screaming buys selling at 20-22 and would easily double over the next year. I was wrong -- they have doubled in two months. For those of you who missed these goodies, here is another stock I think is an easy double (possibly a triple) in the next 12 months. Best of all, it has little (10%-15%) downside risk.
Story: PVSW went from $15 at beginning of year to $38 at end of September. It is a profitable company that has consistently made its forecasts. When it last reported Oct. 22, net income increased 58% and revenue increased 42% compared to similar quarter last year. However, it announced that it would incur higher marketing and R&D costs over the next year as it promoted and expanded its new, award-winning Tango 2000 product as it shifted its corporate focus from being a database company to a company focused on delivering internet data via wireless links to mobile phones and handheld computers, regardless of where the user is located. In short, it is targeting the burgeoning wireless Web market. PVSW stated that they would spend an additional $13 million to market its Tango 2000 product, putting earning per share at break even for the next 3 or 4 quarters.
You would think that analysts would applaud the company's bold new initiative into a far more lucrative market; however, being ANAL-ysts, they only heard about the earnings shortfall and downgraded the stock. PVSW then lost 67% of its value in one day, finally bottoming at $9 at beginning of November. It has slowly been moving up and gapped up 10% today on double normal volume. This is not a "fly-by-night" company; it is one of Kevin Landis' top 10 holdings in his Firsthand Innovators Fund which is up YTD 130%!.
In short, this is a no-brainer. This is a company with talented software designers who are taking their new, award-winning products and committing extra money and talent to enter a far more lucrative niche. If Allaire and Vignette can spend far more than $13 million to peddle software products that are not clearly superior to PVSW's, report quarter-after-quarter of losses without ever having been profitable, and sell at over $100 per share, buying PVSW at $12 per share is a laugher. As always, do your own due diligence. If you are patient and willing to wait for this company to execute its new strategy (and I think they will), you will be richly rewarded.
Bon appetit. |
