Yesterday in "Google,
But for Finding Great Stocks", I
discussed the value of stock screeners as a powerful tool to find
potentially great stocks.
I went through an example using one of the best
free stock screeners on the internet FINViz.com and came up with two
potentially great small cap stocks; MIND C.T.I.
MNDO and Commtouch Software (Nasdaq:
CTCH).
I covered Mind C.T.I. last month in a daily
article,
Small Cap, High-Yield Israeli Tech Stock Primed
For Growth. So, as promised, I
will examine Commtouch Software today.
Commtouch Software Ltd., a Netanya, Israel based company with U.S. headquarters in Sunnyvale, California, makes anti-spam and virus detection products for enterprise customers.
Commtouch was founded in 1991 but for most of its
history operated as a standalone email and messaging provider. A shift in
2004 that focused the company more narrowly on anti-spam solutions led to
a period of soft results and instability, from which Commtouch is now
emerging.
Like most companies developing anti-spam products,
Commtouch has managed to grow its business by constantly developing new
products to keep up with the spammers' shifting tactics. It is now
working on products to block so-called hijacked newsletter spam. Hijacked
newsletter spam commandeers a popular email newsletter and attaches the
spam image or the message at the top.
Save the aforementioned, the company's revenues
have steadily grown from $1.5 million in 2004 to $18.2 million in fiscal
2010. After substantially shrinking its net loss in 2006, the company
finally reached profitability in 2007. The company has been moving
forward, steadily increasing revenues on a year-over-year
basis.
On May 4th the company reported that
first quarter 2011 revenues rose 34 percent to $5.5 million, compared to
$4.1 million in the first quarter of 2010. The revenue growth came in
higher that the industry average of 22.0%. Based on the trailing twelve
months, the stock is selling at a discount to its peers with a P/E of
16.5 - below the industry standard of 19.3.
What I really like about this company is its gross
profit margin. Profit margins are one of the most important numbers at
your disposal to help analyze a company's performance. In the simplest of
terms, margin analysis helps to gauge what it costs the company to make
money. Commtouch has a gross profit margin of 83.2 percent, which is
extremely high for its industry. Along with a high gross profit margin
the company boasts a net profit margin of 31 percent - also above that of
the industry average.
Investors that are able to find companies with
high profit margins are benefitting from companies who are getting the
highest profit for every product it sells, this usually indicates that
the company is outperforming others in its industry. Profit margins vary
from sector to sector, so I never compare companies from different
industries. For example, a 12% profit margin in the auto sector is
considered above average, while 12% in the software sector is below
average.
Another positive for Commtouch - the company has
zero debt. This is always a good sign for any company.
The company's guidance calls for earnings in 2011
of around $0.22 a share. If indeed the company meets expectations it
would be the best year for Commtouch since its inception.
With a P/E below the industry standard, profit
margins above industry standards and zero debt, Commtouch's stock
represents an attractive potential investment.
As always, complete your own due diligence to make certain that a stock is right for your portfolio.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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