ClickSoft: Underloved and Undervalued

ClickSoftware (NASDAQ:CKSW), maker of workforce optimization software, reported full year 2008 results yesterday. The results came in above analyst estimates of $52.5 million and $0.17, with the company booking $52.3 million in revenue to go along with net income of $8.1 million or $0.28. According to the conference call, revenue for the year was negatively impacted by about $1.5 million due to foreign currency exchange. The company also reported that total cash had risen to $32 million dollars. In any economic environment, this was a stellar quarter.

ClickSoft is a leader in the industry of making business more efficient. During this recession, every company in the world is trying to find ways to do more with less. Enter Clicksoft. The company’s software suite can do anything from quickly dispatch a gas utility’s closest technician to a service call to schedule the most efficient worker schedule for a big box retailer. ClickSoft sells its product through multiple internal and external channels, most recently announcing a global reselling agreement with SAP. The company also touts IBM, Accenture (NYSE:ACN), and Microsoft (NASDAQ:MSFT) as global partners. The question remains, with such great results, in not so great economic times, why hasn’t the market taken notice?

ClickSoft currently has a market cap of just under $70 million. With no debt and $32 million in cash the company has an enterprise value of only $38 million. In a normal market, a small software company, like Click, should receive a revenue multiple of at least between 2 x and 3x. This would mean a market cap of somewhere between $130 million and $180 million ($52mil*2or3+$32mil cash); and a stock price of between $4.50 and $6.50. Revenue multiples are given for buyout potential, since a larger firm, say SAP or IBM, could sell the product with much higher margins with their existing sales force. With that being said, Clicksoft as a standalone company earned $0.28 with 31% growth. The market is currently valuing these earnings at less than 5x. There is no way a company with growth, even in this environment, should receive a multiple of any less than the industry average of about 15x. At 15x, Click’s shares would be worth over $5.

The company did not provide guidance for 2009 due to the current economic uncertainty. The company did believe, and fairly strongly, that 2009 would show at least some growth for the business. Even a just flat YOY to 2008 would be outstanding given the current recession.

ClickSoftware is clearly undervalued on all metrics. In an environment where everyone is looking for an investment with relatively low risk and huge potential, CKSW should be on every small cap investors screen.

Disclosure: I hold a long position in CKSW.