Tyler Technologies Looks Like a Strong Buy Ahead of Earnings

Tyler Technologies (TYL) is experiencing rapid demand growth, has a squeaky clean balance sheet, and has an uptrend intact from 2001.  The long term prospects for the Company’s products make it a spectacular long term investment idea, especially as investors seek lower risk with Tyler having a Beta of only 0.8.   

The stock has recently appeared on relative volume screens as the money flow into the stock has been exceptionally strong.  This is a technology stock that can weather an economic recession, due to strong demand and recurring (98% customer retention rate)/deferred revenue from prior contracts.   

Tyler Technologies, Inc. provides integrated information management solutions and services for local governments in the United States, Canada, Puerto Rico, and the United Kingdom. The company’s financial management systems include modules for general ledger, budget preparation, and more.  It also offers specialized products that automate various city functions, including municipal courts and parking tickets.   

With all the recent government intervention in the news, you can easily see how the demand for technological solutions will experience rapid growth for years to come in this market.  Although some state budgets are likely to get tighter, the cost effectiveness of the Tyler products makes it a staple, not a discretionary expenditure.  Local government spending on IT solutions is a $13bln market, expecting to grow at 6%, and Tyler currently has < 2% of this market, but is gaining share quickly. 

A quick look at the fundamentals shows that Tyler Tech. has ZERO debt, strong management efficiency ratios, and trades at a PEG of 1 (lowest PEG in company history).  ROA and ROE have seen incremental improvements for at least the last 6 quarters.  Even better, margins continue to grow due to incremental license & maintenance revenues from software.  Gross margins were 38.4% for 2007 and the company goal is to exceed 50% in the near term.  It is impossible to ignore the impressive results in cash flow, with free cash flow growth of 56% from 2001 through 2008. 

On a technical basis, shares have been in an uptrend since 2001, and the recent declines give a great buying opportunity.  Shares recently found stability at the 200 week EMA and bounced off a double bottom at $12.50.  MACD and RSI are strengthening as we see a bullish sentiment shift in the name, judging from the recent volume on price movements. Please see the chart below (click to enlarge):

courtesy of Prophet Charts, Think or Swim

Tyler Tech. will report earnings on 10/27 before the market opens, and will hold a conference call at 12:00 p.m.  Shares look like a strong buy heading into that announcement.

Disclosure: Author currently has no position in Tyler Tech (TYL), but is considering taking a stake in the near future.