Rightnow Technologies (RNOW): The Right Play On The Cloud Computing Boom?

A few weeks ago, we talked about cloud computing, a phenomenon some market observers believe to be the “next big thing” in the technology world. I mentioned some of the bigger players in cloud computing: Hewlett-Packard (HPQ), IBM (IBM), Intel (INTC) and Microsoft (MSFT) among others. These are all solid names worthy of consideration for a portfolio. If you’re craving a little more growth from a cloud computing-related stock, look at Rightnow Technologies (RNOW).

Montana-based Rightnow Technologies is a provider of customer relationship management (CRM) software, a growing niche in cloud computing. On its own, CRM is a lucrative field dominated by companies like Oracle (ORCL) and Salesforce.com (CRM), but there is still room for a smaller company like Rightnow to blossom.

Part of the allure for Rightnow is that it’s a small-cap stock, with a market cap of around $530 million. Keep in mind that small-cap stocks historically outperform their large-cap peers when the economy is coming out of a recession. The deeper the recession, the better the small-caps perform when the recession is over. Granted, not every such stock survives, but those that do come out much stronger. And we like Rightnow’s chances.

Rightnow’s growth potential was on full display earlier this month when the company reported fourth-quarter profits of $2.6 million, or eight cents a share, compared with $692,000, or two cents a share, a year earlier. Revenue was up 15% to $41.6 million. In other words, a 15% gain in sales led to a quadrupling of profits. Nice! Both the top and bottom line numbers handily beat analyst estimates. The full-year 2009 profit reversed the loss posted the prior year. The update wasn’t entirely rosy and the company has some challenges ahead, but analysts are starting to notice this company and add it to their buy lists.

Technology led the markets higher in 2009. That trend has not carried over into 2010 as of yet, and RNOW is down with the benchmarks on a year-to-date basis. Still, with earnings expected to grow another 75% by 2011, this stock sports some serious growth indicators. Is it already overpriced? Shares trade at nearly 25 times forward earnings and 13 times book value, which may seem pricy but isn’t unusual in fast-growing tech stocks. If you’re looking for a small-cap growth play in the cloud computing space, look no further than RNOW.

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.