The revolution surrounding Big Data is considered to be the next big thing in the technology industry. So the recent slump in the share prices of Teradata Corporation (NYSE:TDC) comes as an utter surprise for many. The stock has been trading close to its 52-week low of $44.07 and the growth in revenue has not been tremendous. This has primarily been due to the under performance outside the US (refer table below).
Table 1: Segment Wise Revenue Performance Of Teradata
Americas (in millions)
International (in millions)
Total Revenue (in millions)
Net income was worse as it saw a marginal decrease this quarter as compared to the previous year. It steeply reduced from $104 million to $98 million; a drop of 5.77%. Operating margin that used to be around 60% in the heydays of the company has gone down drastically to around 55% in the past couple of years. Some are yet hopeful that the stock will rally to its 52-week high that was close to $70 while others claim that this is, indeed, a glitch in the performance of the company. Fortunately for those who have immense faith in the company for years have observed the company deliver profits on a consistent basis. Sound financial fundamentals accompanied with an operating niche that has a positive outlook has kept many optimistic as yet.
Interpreting The RSI Score
The past one year saw investors selling the shares of Teradata in abundance making it an oversold stock in the bourse. While the expectations of shareholders may not have been met there is little justification to the selling spree that the stock has witnessed. The Relative Strength Index (RSI) score is another indicator that suggests that the oversold position may just be over for the company. Last Monday the shares of Teradata accumulated an RSI score of 29.8 compared to the S&P 500 ETF (NYSEARCA:SPY) score of 60.5. Any score below 30 suggests that the share is oversold and it is very likely that the trend may reverse unless there are other factors that may hamper such an event.
The Growth Drivers For Teradata
The ever changing revolutionary IT landscape has been the biggest threat to the profitability and per of Teradata. Every day new solutions arise that seem to surpass the older versions. In spite of tremendous pressure, Teradata has been able to maintain its status quo in the data warehousing and analytics industry as a leading player. While on a standalone basis it may be a force to reckon with, the company has understood the significance of strategic partnerships in a bid to bolster its position not only in the US but also in the international markets where the performance has been far from satisfactory. Even though there have been no significant offerings in its outlook for 2013, its collaborations with other entities in forming new solutions could herald a new dawn in the future. Its recent association with the Belgium based ADAM software is expected to capture the data analytics segment in marketing sector. There are great expectations from the OEM agreement between Dot Hill Systems and Teradata is all set to improve the capabilities of the latter as Dot Hill Systems has proven to be a reliable manufacturer of systems that are compatible with the solutions offered by Teradata.
Along with forging strategic alliances, the focal point for Teradata in recent times has been to target the conglomerate of government organizations. The scalability and the services offered by the data warehousing giant should match the essential requirements of these organizations considering the obvious fact that the volume of data these organizations need to maintain is substantial. Recently, the White House Office of Science and Technology Policy and the Networking and Information Technology Research and Development (NITRD) acknowledged the sincere efforts of Teradata in rendering support to not-for-profit organizations and other government bodies and this may just work in favor of Teradata when it comes to obtaining newer contracts in the future. The uphill task to target large organizations should increase the dependency of these behemoths on Teradata and this in turn would ensure a steady revenue stream for the company.
On the darker side, the company is yet to tap full potential of the markets of Asia, Middle East and Africa and it should look forward to establish its stature in those markets to spawn its global image. It is quite possible that the markets in the US and Europe will saturate soon and the developing nations may be the only avenue for substantial growth.
A Detour In The Making
Teradata is possibly entering a phase in the bourse where the plunge is expected to come to a halt. The RSI score, steady performance, positive industry outlook and the recent partnerships should be a reason sufficient enough to indicate positive signals to the investors and restore parity to the share price.
Figure: Movement in share price of Teradata in the past one year
The share should touch the $55 mark from its current level (as on 15/11/2013) of $45.59 in the short term. Whether it will manage to breach the $70 mark or not, this will depend entirely on its performance in the markets of Asia, Middle East and Africa. For Teradata, these are markets that have witnessed intense competition of late and unless the company proactively seeks to tap these markets, there would not be much alteration in the income statement.
Slow, Steady but Sure
There is little evidence that indicates that Teradata would disappoint its esteemed investors. As the price revolves around the 52-week bottom, there is a clear indication that it is undervalued. Investors should look forward to grasp this opportunity without delay and hold on for the future. An earnings amiss in the subsequent quarters may delay the up-move but further drift downwards is unlikely. Such incidents should not dent the confidence of the shareholders as the company holds tremendous potential in the future. It is a slow and steady game but the ones holding their nerves should look to reap the rewards on long term basis.