Will Enterprise Cloud Computing Firms See M&A Spree?

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Includes: NTWK, SAAS, SQI, UPLD
by: Kapitall

By Mary-Lynn Cesar

Will Enterprise Cloud Computing Firms See M&A Spree?

Big firms like IBM (NYSE:IBM) are moving into cloud computing enterprise tech. Acquisitions could make things easier.

How do the tech titans of yesteryear stay competitive in 2016? By embracing enterprise technology-sometimes to the tune of billions of dollars. And, as the Wall Street Journal argues, if the market selloff continues, it's quite possible that companies like IBM, Hewlett Packard Enterprise (NYSE:HPE) and Cisco (NASDAQ:CSCO) will drop serious cash to scoop up the competition as they seek to expand their enterprise tech presence.

Cloud computing, in particular, is a fast-growing area within enterprise tech, which refers to business-to-business (B2B) offerings that address the complex IT and data needs of large organizations rather than individuals. Forrester, a market research firm, predicts that business spending on cloud computing services will reach $191 billion by 2020, more than double the $72 billion seen in 2014.

While demand for cloud computing is on the rise, the shares of these publicly traded companies are a different story. Box (NYSE:BOX), which went public in January 2015, is trading below its IPO price of $14. The cloud storage company's market cap has plummeted from $2.2 billion pre-IPO to $1.3 billion. For comparison, despite losing roughly $3.4 billion off of its market cap since it began trading in November, Hewlett Packard Enterprise is currently worth $23.7 billion.

The ongoing market volatility is obviously a drag for everyone, but Hewlett Packard Enterprise and its multi-billion dollar peers are better equipped to weather the storm than smaller, younger firms. As a result, many are expected to use this period of lower valuations to pick off some of the competition.

Box CEO Aaron Levie told the Journal, "Even before this correction, we've already been seeing the large-cap incumbent technology companies buy small fast-growing cloud companies because they need that kind of DNA, they need that kind of growth."

With that in mind, below is a list of application software stocks that offer enterprise cloud computing services. Each of these stocks boasts positive quarter-over-quarter earnings per share (EPS) and sales growth as well as an increase in insider purchases. Insiders are employees who buy stock based on public information - so it's legal - because they believe the company's stock to be undervalued. It's also worth noting that a significant increase in insider buying is seen as bullish and may indicate that a stock will rise in the near future.

Finally, as Levie pointed out, big tech companies' acquisitions efforts will be directed towards fast-growing firms. So, in addition to the aforementioned details, each stock's expected EPS growth this year, next year and over the next five years is also listed.

Click on the interactive chart to view data over time.

1. NetSol Technologies Inc. (NASDAQ:NTWK): Provides global IT and enterprise application solutions, including credit and finance portfolio management systems, SAP consulting, custom development, systems integration and technical services. Market cap at $73.29M, most recent closing price at $7.38.

EPS growth quarter over quarter at 80.00%.

Sales growth quarter over quarter at 30.40%.

Insider purchases up by 0.34%.

NetSol's EPS is expected to grow by 58.70% this year, 600% next year and 28% over the next five years.

2. inContact Inc. (NASDAQ:SAAS): Provides cloud computing contact center services and network connectivity in the United States. Market cap at $536.62M, most recent closing price at $8.99.

EPS growth quarter over quarter at 18.20%.

Sales growth quarter over quarter at 26.90%.

Insider purchases up by 2.02%.

inContact's EPS is expected to grow by 5.30% this year, 20% next year and 15% over the next five years.

3. SciQuest Inc. (NASDAQ:SQI): Provides an on-demand strategic procurement and supplier enablement solution worldwide. Market cap at $348.81M, most recent closing price at $12.59.

EPS growth quarter over quarter at 150.00%.

Sales growth quarter over quarter at 2.30%.

Insider purchases up by 4.82%.

SciQuest's EPS is expected to grow by 100% this year, 19.42% next year and 15% over the next five years.

4. Upland Software Inc. (NASDAQ:UPLD): Provides cloud-based enterprise work management software. Market cap at $109.66M, most recent closing price at $7.06.

EPS growth quarter over quarter at 20.00%.

Sales growth quarter over quarter at 4.90%.

Insider purchases up by 25.80%.

Upland's EPS is expected to shrink by 136.70% this year then grow by 32.10% next year and 20% over the next five years.

(Monthly return data sourced from Zacks Investment Research. All other data sourced from FINVIZ.)

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.