Earnings season is full force as hundreds of companies are reporting on a daily basis. While the pundits and institutional investors are digesting reports from major firms like Caterpillar (CAT), Hess (HES), Apple (AAPL), Corning (GLW) and other large S&P 500 firms over the past 24 hours, I continue to look at some of the reports from the small cap space for clues on how some of the underfollowed companies there are doing. One stock that reported yesterday that caught my eye is small cap Zix Corporation (ZIXI) which provides email encryption software as a service.
Highlights from earnings report and conference call:
- Earnings were up over 10% Y/Y to four cents a share.
- Revenue increased just under 10%, Zix's 14th consecutive quarterly record in revenue.
- The company generated approximately $5 million in cash flow from operations, an increase of $2.5 million Y/Y.
- Second quarter new first year orders of $2.5 million, a 22% year-over-year increase and an all-time quarterly sales record for the company.
Seven reasons ZIXI has substantial potential upside from $2.50 a share:
- The company has a solid balance sheet with over $18mm in net cash (just under 15% of market capitalization) on the books.
- Analysts expect between 10% to 15% sales growth for the company in FY2012 and FY2013. The stock has five year projected PEG of under 1 (.63).
- The stock is selling at the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
- The stock is selling at just 7 times forward earnings, a huge discount to its five year average (41.3).
- Only two analysts cover the stock, one has a price target of $3.75 a share and the other is at $5.25, both targets are substantially above the stock's current price.
- The company has grown revenues at a 13% annual clip over the past five years. It also almost doubled operating cash flow from FY2010 to FY2011.
- The stock has good technical support at these levels (see chart)