Computer Software Innovations: Another Solid Quarter, Stock Looks Cheap

Computer Software Innovations (CSWI.OB) reported another impressive quarter with operating income growing 42% year over year. The growth in margins and earnings is a testament to management’s solid operational performance.

CSWI is benefiting from the push to bring classrooms into the 21^st century through their sales and implementation of the electronic classroom, an interactive computerized black board replacement that allows teachers and students to interact with lessons by touching and writing on the board. Students can also be given wireless devices which allow them to answer questions or take quizzes and get real time feedback. CSWI also provides software solutions for schools and government that handle everything from Accounting and Budgeting to Payroll and Human Resources.

The company is going to be making small strategic acquisitions funded by their free cash flow in order to increase their footprint. Once they acquire these companies, management then works to increase sales by cross selling new services. There is also a big opportunity for growth in electronic classroom sales as the penetration rate is only 20-25% within their footprint and management sited some projections on the conference call that see that rate going up to 80% penetration rate within several years.

The stock looks cheap given the growth opportunities, trading at only 4.5 times Enterprise Value to EBITDA and 0.4 times Enterprise Value to Sales.

Disclosure: Author has a long position in CSWI.OB