Pegasystems Inc.: Get back on the horse
Pegasystems Inc. (Nasdaq: PEGA)
Cambridge, Mass.
http://www.pegasystems.com/
52-week low / high: $8.07 / $13.10
Shares Outstanding: 36.13 million
Market Capitalization: $384.39 million
Managers wanting to grease their business machine are discovering Pegasystems Inc.’s (Nasdaq: PEGA) software. The Cambridge, Mass.-based firm makes software that drives “revenue growth, productivity, and agility for the world's most sophisticated organizations.” With the company’s recent revenue and earnings increase, small-cap investors may want Pegasystems’ stock to drive their own revenue growth.
The firm’s stock price has been relatively stable over the last 52 weeks. After touching a year low of $8.07 on March 13, the stock hit a 52-week high of $13.10 on Nov. 6 when Pegasystems swung to a third-quarter profit, from a loss during the year-ago quarter. Since then, shares have hovered in the $10 to $12 range.
Although some of Pegasystems’ main customers are in the financial services and health-care markets, the company has been able to weather the subprime crisis. The firm has managed this feat by going after the international market and pursuing diverse projects with their customers, Gregg Speicher, a senior equity analyst with Moss Creek Capital, said in an interview with Business Financial Publishing.
“I won’t say that they haven’t maybe lost a deal here and there, but again they are deep in these banks so they’ll have 10 different projects,” Speicher said.
The company is heavily owned by its executives. Alan Trefler, Pegasystems’ 51-year-old CEO and founder, owns 20.55 million shares, or about 57% of 36.13 million shares outstanding. Financial institutions hold 36% of shares and other company executives hold about 4% of shares. To sum up, institutions and insiders own 96.85% of outstanding shares.
In the most recent quarter, Pegasystems posted net income of $3.5 million, or $0.09 per share, compared with a loss of $0.4 million, or $0.01 per share, a year earlier. Revenue for the three months ended Sept. 30 rose 25% to $42 million, from $33.5 million during the same period of 2006.
“During the quarter, we closed significant new business with existing customers, continuing to drive growth with our target account strategy,” Trefler said in a statement.
To drive further growth in 2008, Pegasystems will take advantage of its new software licensing system. The company recently began marketing perpetual licenses, along with its traditional term licenses. Perpetual licenses allow companies to use Pegasystems’ software without a termination date unlike term licenses, which are akin to rental agreements. Speicher said the company has a “huge backlog” that hasn’t been recognized yet and it will help drive earnings growth.
A company that has proven steady during choppy times is definitely worth a second look from investors. For growth investors, now is the time to investigate this small cap before Pegasystems is on everyone’s radar.
