RightNow Technologies Still a Worthy Growth Pick

| About: RightNow Technologies, (RNOW)

Just over a year ago, when our group first evaluated RightNow Technologies (NASDAQ:RNOW), cloud computing was all the rage. This is evidenced by articles like this, pushing names such as Salesforce (NYSE:CRM), which has run up 75% since. Many felt that the cloud would burst at some point and these companies were heavily shorted. But this week, with Apples (NASDAQ:AAPL) introduction of the iCloud, cloud computing is coming back into the mainstream limelight.

RightNow works in the customer relationship management realm of cloud computing and has been on a run exceeding that of Salesforce or VMware (NYSE:VMW) over the last 13 months. Their goal is to enhance a customers use of a clients web interface and are doing so with RightNow CX. They claim that this product brings together a viewers web, social and contact center experiences. This incorporates managing the clients websites (including surveys and pop-up help), customer emails and smart-phone apps. Their client list includes Overstock.com (NASDAQ:OSTK), Black & Decker (NYSE:SWK), TD Bank, iRobot (NASDAQ:IRBT), British Airways, Nikon (OTC:NINOF) and a number of video game companies.

Financially, the companys increase in price is backed by an equally impressive increase in earnings, as seen in the graph below. As you can see, RightNows earnings have risen steadily since 2008, with a PE that has been relatively stable, currently at 62. For a comparison, VMware is right around there and Salesforce is roughly double that. Other big companies that are also in the cloud computing game like Oracle and IBM have much lower PEs for obvious reasons.

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An important question for RightNow is if they can sustain this growth and keep their client list growing. The only way to do this is to continue to offer a premium product at affordable rates. They acknowledge in their quarterly report that they are threatened by up and coming companies that offer to perform similar services and by companies that internalize the process. They also derive a third of their sales from outside the United States so they are at risk of fluctuations in exchange rates and instability overseas.

I personally feel that there is a play to be made on RightNow, even if it is merely technical. The right half of the 1 year graph below shows that the price has slipped below the 50 moving average but it is still within an upward trend. If it bounces here, the price could certainly climb back up to the $36-$37 range and even just that would be a 15-16% gain.

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Again, RightNow realizes that they must continue to innovate and expand in order to maintain their place in the industry. They have put together a whole lot of cash and made a small acquisition in January, buying Q-go for $34 million. RightNow also carries a lot of long term debt, to the tune of $175 million. This surely dampens their current cash position. With that being said, it should be remembered that RightNow remains a takeover target themselves. Their market cap is only at $1.04 billion, so it would be relatively easy for a company like IBM to come in and buy them up. If this were to happen the potential gains would be even greater.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.