ADVC - on first glance and second glance it looks good. Couple nitpicks:
- I don't particularly like software companies that have been around for 17 years and have not grown to big size. Last couple decades have been enormously favorable for software companies, so anytime I see an old company at 15M market cap, I imagine it to be run by incompetent old fogies and/or by a guy in a basement for his own fun. (ADVC does have 67 employees, so it's not a guy in a basement ;). Its CEO holds 54% of shares, so it might be that he is incompetent and/or running it for his own fun.).
- They say that they only spend nominal amount for R&D. Does this mean that they are not developing any new products? (It's tough to get real understanding of their R&D due to funky SW development cost accounting.)
- I also wonder what their competition is and whether they are falling behind in technology. 15M is a very small market cap, so obviously they don't have the whole EDI field to themselves. Who is their competition and will they eat ADVC's lunch tomorrow?
- I am somewhat concerned that large part of their revenue is "Maintenance contracts ". If they are running subscription model, then they might be putting subscriptions there.
- I don't understand 10:1 stock split in 2009. Why it was done and what it accomplished?
- It is not particularly cheap for current time. E/EV is at 12%, P/book and PSR are somewhat high for a micro cap. I understand that they have high margins, but still. It would be a great buy for April 2011, but right now there are tons of companies at low prices, so buying illiquid microcap becomes a tough choice. It did not drop much yet, so it might not go up much either compared to some potential V shaped recoveries.
Note that these are nitpicks. I am not being negative, I am raising some potential questions. The company does look attractive otherwise. It would be perfect investment for someone investigative, who would call the company, call the customers, get scuttlebutt, etc. I'm not good at that. :) |
