A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that makes laptops, desktops, tablets and mobile devices (collectively known as “endpoint devices”) safe for more than 12,000 commercial customers.
Absolute Software is a cloud-based provider of technology that lets companies track, monitor and keep secure their employees’ mobile devices. It has a strong balance sheet with $34.6 million in cash and no debt. While the company operates in extremely competitive markets, says Pat, that may increase its takeover appeal.
Q: Pat, what is your recommendation on Absolute Software? Thanks.
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Absolute Software, $8.51, symbol ABT on Toronto (Shares outstanding: 39.0 million; Market cap: $338.7 million; www.absolute.com), is a cloud-based provider of technology to let companies track, monitor and keep secure their employees’ mobile devices.
The company’s Persistence technology is embedded in the laptops, desktops, tablets and mobile devices (collectively known as “endpoint devices”) of the majority of the world’s largest global computer manufacturers. They include Dell, HP, Lenovo, MPC, Toshiba and Fujitsu. Absolute’s platform lets IT and security professionals enhance asset management, protect sensitive data, reduce vulnerabilities and ensure compliance with corporate policies and privacy regulations.
The company currently serves more than 12,000 commercial customers globally, protecting more than seven million customer devices. This includes commercial, healthcare, education, and government customers.
Absolute’s revenue rose 2.9% from $91.0 million in 2014 to $93.6 million in 2015 (fiscal years end June 30). (All figures except share price and market cap in U.S. dollars.) Revenue then dipped 5.1% in 2016 to $88.8 million, before rebounding 2.7% in 2017 to $91.2 million. Sales rose 2.6% in 2018 to $93.6 million.
Growth stocks: Earnings and revenues are going up once again
Earnings were $3.6 million, or $0.08 a share, in 2014. They rose another 27.8% in 2015 to $4.6 million, or $0.10. Profits jumped to $9.7 million, or $0.24 a share in 2016; that included a $14.1 million gain on the sale of a business unit. The company lost $5.0 million in 2017, but it returned to profitability in 2018 with earnings of $3.1 million, or $0.08 a share.
In the three months ended September 30, 2018, Absolute’s revenue rose 5.7%, to $24.3 million from $23.0 million a year earlier. The company earned $1.2 million, or $0.03 a share, in the latest quarter, compared to a loss of $144,417, or nil per share.
Absolute’s balance sheet is strong, with cash of $34.6 million, or $0.89 a share, and no debt.
The company operates in extremely competitive markets, but its outlook remains positive. The chance of a takeover by a larger rival is not reason enough to buy the stock, but it does add appeal.
Absolute could make as much as $0.19 a share this year. The stock yields 3.8%.
Recommendation in Inner Circle: Absolute Software is okay to hold for aggressive investors.
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