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Technology Stocks : INSS - International Network Services
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To: cfimx who wrote (120)6/27/1997 7:28:00 AM
From: Dale Baker   of 446
 
The last two 10-Q's tell an interesting story about INSS. In the quarter ended 12/96, they had 518 engineers who brought in about $45,000 revenue each. I think this measurement is important because INSS books only service revenue.

By 3/97 the number had grown to 570 engineers booking the same rate (approximately). The 10-Q mentions the growth pains they are having, along with the fixed costs involved in an ever larger work force. There are virtually no economies of scale here.

For INSS to justify a 50 PE at its current price, they would need more than 1100 engineers producing $200 million in revenue for a net 8% margin, or $16 million earnings and about .50 per share. They only hired 61 new engineers in the last quarter; can they hire and utilize 500 more by 12/97? Not likely.

More realistically, they might have 700-750 engineers by the end of 1997, producing $125 -135 million revenue and $10 - 11 million earnings, or .30 - .33 per share.

Unless the market continues to give them a PE over 70, this price probably can't be sustained. The picture gets worse if INSS can't grab a big chunk of a very limited technical talent pool. And they are not much of a buyout target with around $1 per share in cash and $3 -4 in revenue.

I'm open to opposing arguments here. But the numbers seem compelling.

Good luck to all.
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