Hello, everyone!
I'm a small investor and have recently done a fairly thorough study of what I call the "front office software" companies. I use that name because there seems to be a lack of consensus about what to call the relatively infant and highly fragmented business. The term, front office, seems to wrap up all the various types of software and at the same time allude to the readily accepted term, back office software. Interestingly, very recently I've seen press releases about the solutions arriving on the market that link the front and back office software, so apparently I'm not too far off base in my thinking.
At any rate, I came to the conclusion that the current leaders in the front office software market are (in no particular order) Remedy, Vantive, Scopus, Siebel Systems, Software Artistry, Astea, Clarify, and to a lesser extent, Brock. I'm excluding Aurum only because of the recently announced purcahse by Baan that has yet to close. Because the industry is so fragmented, I'm not precluding the possibility that other public companies could and should be added to the list.
When I finished my study last month I also came to the conclusion that the stocks of these companies for the most part sport lofty premiums. To arrive at that conclusion I used fundamental analysis with a strong emphasis on quantitative issues such as profit margins, cash, debt and operating cash flow, and quantitative issues such as customers, partnerships and management profiles. Specific to valuations, I compared price-to-sales ratios and PEs relative to growth rates with the fundamentals mentioned above in mind..
Though I made an initial mistake in assessing Software Artistry, I now believe that it is the only undervalued company of the bunch. Even though it has run up about 40% in the last month, I still beliece that to be the case and will invest very soon. (As an aside, even though Scopus has dropped about 25% in the last month I still don't find it to be a compelling value at current levels.)
For me the big risk with SWRT is that the fourth quarter must produce 60% of the year's earnings in order for the company to achieve analysts' expectations. I suspect that is the reason it is priced with a lower premium than that of its competitors.
If anyone would like to discuss the specifics of this industry or companies, I would like to be able to learn a lot more. I'm especially weak on understanding the real technology though I think I understand the basic concepts that the various companies offer as solutions to needs in the marketplace.
I'm strictly a long-term investor (not a trader) looking forward to hearing from anyone interested in pursuing this further. I think the industry has very strong gorwth for years to come. |
