Newsletter Watch: Salary.com
Bill Martin is well known as the original founder of the Raging Bull, an early leader among financial online communities. Now, in addition to being a director for BankRate.com, he is also the founder of Indie Research, which publishes such sites as BullMarket.com.
His Bull Market Report is a daily investment service focused on identifying what he considers to be "great long-term growth, value, and income generating investments."
As part of a diversified, long-term portfolio Martin will often recommend small-cap stocks, such as one of his latest recommendations, Salary.com, Inc. (Nasdaq: SLRY), with a market cap of $140 million.
"Salary.com will be celebrating the one-year anniversary of its IPO and subsequent listing on the Nasdaq stock exchange,” he says. “It was around this same time that we originally looked at the company, telling investors to steer clear."
Since his first cautious assessment, the shares have ranged between $16.32 per share on the high side to Thursday’s closing price of $8.55.
Now, a year later, he has reexamined the shares. "With the stock price now significantly lower — over 40% lower — and top-line growth still strong, our opinion has changed," he says.
At its core, he notes, Salary.com provides Web-based software suites that help companies manage their employee compensation packages. "As its name suggests, the company helps clients determine employee salary and compensation through a variety of comparable databases, third-party data, and in-house data available from customers," Martin says.
As a result, the firm says it "can significantly improve the effectiveness of our customers' compensation spending."
In addition to its salary/compensation oriented flagship product CompAnalyst, Martin explains that Salary.com also offers TalentManager, a software package used for tracking employee performance. The firm's software, he says, is subscription based with fees ranging from $2,000 to $100,000 on an annual basis.
Since last year, Salary.com has added more than 1,000 new enterprise subscribers, which brings the total enterprise subscriber count to more than 2,700, says Martin. In its most recent quarter, he explains, the company added marquee names like Lord & Taylor and Quiksilver, Inc. (NYSE: ZQK) to a client list that already includes UPS, Inc. (NYSE: UPS), Cisco Systems, Inc. (Nasdaq: CSCO), Merrill Lynch & Co., Inc. (NYSE: MER) and The Home Depot, Inc. (NYSE: HD).
As to its most recent quarterly results, he says that in February, the company narrowed its loss to -$3.1 million, or -$0.22 per share, from a loss of -$2.2 million, or -$0.43 per share, in the third quarter of fiscal 2007.
On a non-GAAP basis, which strips out certain items including the impact of stock-based compensation expense, he points out that the company posted a loss of -$848,000, or -$0.06 per share, versus a loss of -$1 million, or -$0.20 per share, in 2007, Martin explains.
Meanwhile, he adds that third-quarter revenue climbed to $9.2 million, surging 52% year over year and up 8% sequentially. Other highlights in his view include Salary.com posting record cash flow from operations of $2.3 million versus $1.4 million in the third quarter last year.
Within the last quarter, Martin says, Salary.com boosted its product offerings by acquiring Schoonover Associates, a job-competency and human resources consulting group, for $3.5 million in cash. He suggests that if certain performance metrics are met, Schoonover is eligible for up to $500,000 more in cash, as well as $1.5 million in stock compensation.
For the full fiscal 2008 year, the company is looking for a loss of -$10.4 to -10.6 million, or about -$0.75 to -$0.77 per share, the advisor says. And, stripping out select items, Salary.com expects to post a loss of -$3.6 to -$3.8 million, or approximately -$0.26 to -$0.28 per share, on a non-GAAP level.
He further says that total revenue for the year is expected to be in the range of $34.8 to $35.3 million, which he says is up slightly from prior guidance.
"In light of the soft economy, we would typically recommend using caution before throwing capital into a company that derives revenue from evaluating employee compensation," Martin says.
However, he says, "Because Salary.com's stock has received a 43%+ haircut from its high, we feel that any risk of a slowdown has largely been priced into its stock already.
In addition, he believes. "Because the company has such a diversified customer base with a relatively low subscription price point and has demonstrated recent revenue growth rates in excess of 50% per year, we feel Salary.com is in a good position to weather any downturn over the long haul."
Martin also believes that the company may benefit from economic weakness.
"It is possible that companies will begin and/or continue to make cost-cutting moves — including personnel — which very well may make Salary.com's compensation tools indispensable for some," he says.
Meanwhile, with the stock trading at under 10 times his estimated 2008 free cash flow estimates, he calls the issue "attractively priced." As such, he concludes, "We feel this is a solid choice. Aggressive investors with a taste for small caps can begin accumulating shares of Salary.com (SLRY)."
For 25 years, Steven Halpern has conducted an annual survey asking the leading newsletter advisors to select their favorite stocks for the year. His 2008 report features 120 top picks. You may download the report for free by clicking here.
