On Tuesday, IBM announced its impending acquistion of SoftLayer, a cloud computing storage company. Apparently the world's largest computer company paid $2 billion for the world's largest privately held cloud computing infrastructure provider. Quartz reports that with this move, IBM aims to bolster its cloud services as it seeks to become a veritable competitor for public cloud giant Amazon. Since cloud computing is playing a more integral role in businesses' operations, an increasing number of companies are offering cloud-based services to the market. We decided to take a look at these companies and find those that are well positioned to deliver
We began with a universe of cloud computing stocks derived from the First Trust ISE Cloud Computing Index Fund (SKYY). Next we screened for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages. This indicates that these stocks have strong upward momentum.
Momentum is definitely useful when considering stocks, but we felt it would be more beneficial to incorporate a metric that analyzed a company's past performance. This way, we would be able to isolate the firms that have done well and are likely to continue to do well. Therefore, we screened our remaining stocks for those that have outperformed over the last quarter, with over 20% return.
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you think these stocks are the business? Use this list as a starting point for your own analysis.
1. Financial Engines, Inc. (FNGN): With its subsidiaries, provides independent, technology-enabled portfolio management services, investment advice, and retirement income services to participants in employer-sponsored defined contribution plans, such as 401(k) plans.
- Market cap at $2.07B, most recent closing price at $42.41.
- Performance over the last quarter at 25.91%.
- The stock is currently trading 0.65% above its 20-day moving average, 11.77% above its 50-day moving average, and 41.60% above its 200-day moving average.
During the first quarter of 2013, Financial Engines' revenue increased by 29.15% to $53.9 million from $41.7 million in the same period in 2012. The company attributed the increase to its 38% year-over-year growth in revenue from professional management, which contributed $45.5 million to the company's revenue. Net income rose to $6.2 million, or $0.12 per diluted share, from $3.5 million, or $0.07 per diluted share, the first quarter of 2012. Gross margins decreased from 63.27% to 63%.
Over the course of the last month, Financial Engines has recorded great gains when compared to its closest competitors. The stock returned 15.28% since May 6th, beating peers State Street Corp. (STT) and The Bank of New York Mellon Corporation (BK), which returned 11.12% and 6.03%, respectively, during the same period.
Financial Engine's EPS grew by 20.68% over the last year, which is higher than competitor State Street Corp. (EPS growth over the last year at 10.61%). Additionally, at 35.0%, the company has a higher than average projected earnings growth rate over the next 5 years. The Bank of New York Mellon Corporation's projected EPS growth over next 5 years stands at 12.45%, while State Street Corp.'s is 11.43%.
Despite Financial Engine's solid performance, a glance at its short float in comparison to industry averages suggests that short sellers think there's more downside to the stock. The company's short float stands at 15.86%, which is equivalent to 23.86 days of average trading volume. For context, State Street Corp.'s short float is 0.78%, representing 1.14 days of trading volume, and The Bank of New York Mellon Corporation's short float is 1.18%, representing 2.48 days of trading volume. A look at the company's valuation ratio versus industry average presents another drawback, as its Price / Free Cash Flow ratio is 76.43, considerably higher than The Bank of New York Mellon Corporation (P/FCF ratio at 0).
Back in May, Financial Engines announced that it was entering the individual retirement accounts market. As Insider Monkey notes, this will likely be quite lucrative for the company given the size and needs of the U.S.'s aging population. The Department of Health and Human Services' Administration on Aging reports that 19% of the population will be 65 and older by 2030.
2. Open Text Corp. (OTEX): Develops, markets, sells, licenses, and supports enterprise content management (ECM) solutions primarily in North America and Europe.
- Market cap at $4.15B, most recent closing price at $70.49.
- Performance over the last quarter at 23.00%
- The stock is currently trading 2.22% above its 20-day moving average, 12.03% above its 50-day moving average, and 22.42% above its 200-day moving average.
Open Text reported a 15.5% year-over-year increase in revenue during the third quarter of fiscal year 2013, as revenue rose from $292.3 million to $337.7 million. Cloud services revenue totaled $44.4 million, which is a 3.9% sequential decline. Net income decreased from last year's $34.7 million, or $0.59 per share, to $24.8 million, or $0.44 per share. Meanwhile, gross margins increased from 63.61% to 64.24%.
The software maker has also recorded great gains over the last month when compared to its peers. The stock returned 6.24% since May 6th and surpassed Microsoft Corporation (MSFT), which returned 4.42%, and Oracle Corporation (ORCL), which returned 1.94%.
Like Financial Engines, it appears that short sellers see more downside in store for Open Text's stock. The company's short float stands at 14.10%, which is equivalent to 35.32 days of average trading volume. This is significantly higher than SAP AG (short float at 0.57%, representing 4.07 days of trading volume) and Oracle Corporation (short float at 1.17%, representing 1.62 days of trading volume).
Bloomberg reports that CEO Mark Barrenechea plans to continue the company's recent acquisition spree. From 2011 to 2012, the Canadian software company spent $750 million on five acquisitions, including cloud-based messaging provider EasyLink Services International Corporation. In regards to cloud services, Open Text will launch its Tempo series -the company's alternative to Dropbox and Evernote - at the end of the fourth quarter of fiscal 2013.
*All data sourced from Finviz.