Interwoven Looks Strong Ahead of Today's Announcements

Apr.17.07 | About: Interwoven, Inc. (IWOV)

I have owned for about four years and continue to own Interwoven, Inc. (IWOV), a small cap company, one whose market capitalization is between approximately two hundred fifty million and two billion dollars. So far, I am up considerably on the stock with most of the gains having occurred in the last six months.

As an aside, you can view the Yahoo Finance stock chart for the last five years here. Interwoven will provide its first quarter 2007 financial results after the market closes today on Tuesday, 17th of April, followed by a conference call at 5 p.m. ET.

I have used the company's 2005 10-K filing to provide a description of its business.

Interwoven, Inc. provides enterprise content management (“ECM”) software and services that enable businesses to create, review, manage, distribute and archive critical business content, such as documents, spreadsheets, e-mails and presentations, as well as Web images, graphics, content and applications code across the enterprise and its value chain of customers, partners and suppliers. Our industry-specific solutions enable organizations to unify people, content and processes to minimize business risk, drive revenue growth and maximize operational effectiveness. Customers have deployed our products for business initiatives such as improving customer experience, streamlining information technology processes, managing compliance mandates and much more. To date, more than 3,400 enterprises and professional services organizations worldwide have licensed our software solutions and products.

I interpret the above information as Interwoven provides the tools to allow companies to manage their critical information more effectively. Business processes are complex and becoming more complex, and regulations, such as Sarbanes-Oxley and others, require strong controls and retention of critical information.

Using Yahoo Finance, I have gathered some key financial metrics ahead of the conference call.

Interwoven: Key Financial Metrics
Financial Metric IWOV
Data Sources Yahoo Finance, 16 April 2007
Market Cap. 731M
Enterprise Value 537M
Forward P/E (fye 31-Dec-07) 24.66
PEG Ratio (5 yr expected) 1.16%
Enterprise Value/EBITDA (ttm) 20.91
Qtrly Revenue Growth (yoy) 15.90%
Shares Short (as of 12-Mar-07) 3.05M
Short Ratio (as of 12-Mar-07) 8.5
Short % of Float (as of 12-Mar-07) 7.20%
Shares Short (prior month) 2.39M
Click to enlarge

The market capitalization and enterprise values show that Interwoven is a small cap company. Because it is a small cap, investors should exercise additional caution because small caps are often more volatile. Moreover, a few key developments can significantly affect the value. Moving along, the P/E ratio by itself appears to be a bit high. But when factoring growth, the PEG Ratio appears rather modest at 1.16.

The growth is strong as evidenced by quarterly revenue growth [yoy] of nearly 16 percent. There are significant short sales, which I consider a positive in our example, with about 3 million shares short, which translates to 7.2% of the float being short and to a short ratio of about 8.5 days.

A revenue and earnings table is provided below.

Interwoven: Revenue and Earnings Estimates
Financial Metric Current Qtr
Next Qtr
Current Year
Next Year
Data Sources Yahoo Finance 16 April 2007
Revenue Estimates 52.45M 54.84M 221.21M 245.04M
Earnings Estimates 0.12 0.13 0.55 0.68
Click to enlarge

The revenue and earnings data is always important information to track. As soon as the results are provided today, speculators and investors will begin adjusting their positions in after hour markets. That is why it is good to review the company's key metrics in advance of the release.

Interwoven appears to be in a sweet spot as companies are spending money to streamline their information flow. Companies want better control and, even more importantly, want less bureaucracy and redundancy of information. Unless the company releases extremely poor news, I am likely to continue holding the stock.

Disclosure: I am long Interwoven stock.