SPSS, Inc.: Predicting The Future, Predicting Growth

Jun. 1.07 | About: SPSS Inc. (SPSS)

SPSS, Inc. (SPSS) spells data analysis. The company's predictive analytics software performs such functions as statistical analysis, data mining, performance measurement, and fraud detection. Its business intelligence products measure and predict customer behavior in such areas as sales and targeted marketing. The data can then be stored, further analyzed, and distributed or used to generate reports. SPSS's data mining tools offer language-based search and categorization tools. Customers include research analysts, financial services firms, telecommunications companies, government agencies, and educational institutions.

While no one can predict the future with certainty, SPSS predicts it with the use of past data and information and gives its clients a good reading of what will most likely happen. It doesn't guarantee anything, but it's obviously giving customers what they need because sales are growing nicely, with more growth predicted.

Revenues were $224.1 million in 2004. This year, they should be $290 million, next year, $320 million. Analysts are predicting (there's that word again) a 10% rise in sales, on average, every year for the next 5 years. In the same time period, they're looking for a 22% average annual increase in earnings. In 2004, earnings per share were 31 cents, then 85 cents in 2005, followed by $1.07 in 2006. This year expect $1.55 and next year, $1.75. With growth like that, it's easy to understand why the stock has been on a strong upward trend since 2004, sits at its all time high currently and carries a relatively high P/E (price to earnings) ratio of 58.

This is a small cap company with a market cap of $800 million. That usually means higher volatility since fewer shares are traded (shares outstanding are 18.4 million). Other numbers: Current assets outnumber current liabilities by more than 2.5 to 1. Net profit margin is 10.8%. Return on Equity is 12.5%, up from 10.2% last year. Sales are from 3 regions: USA with 42%, Europe with 43% and 15% from the Pacific Rim.

While SPSS is growing nicely, it does have some stiff competition: Oracle, SAS Institute, NCR, Fair Isaac, Angoss, and Unica. But SPSS is gaining market share, particularly with the newest iteration of its flagship software SPSS 15.0. There are improved graphics, data access management as well as new analytic and connectivity features in the latest version.

Furthermore a recent partnership with MedeFinance should prove very positive in SPSS's initial forays into the healthcare sector.

There are many reasons to like SPSS. But know that the stock is trading at its all time high, both in terms of price and P/E. Investors like this stock, very much. The future looks bright, but as stated earlier, no one can accurately predict the future, not even SPSS. But it gets close enough to make a lot of money.

SPSS 1-yr chart


Disclosure: none