A Fast-Growing Technology Provider To Pick Up On The Next Selloff

Aug. 3.12 | About: EPIQ Systems, (EPIQ)

The market is ripping higher on a better-than-expected jobs report. I am taking some money off the table in some of the recent energy winners that are soaring higher today. I am also doing my usual research and putting together a list of undervalued stocks to buy on the next pullback, which I am confident we will get next week when investors realize not much has changed in Europe, the jobs report is weaker that it actually seems (e.g., worker participation declining July), and companies continue to miss revenue estimates. One stock on that is list is a cheap technology solution provider focused on a growing segment (litigation and compliance) of the market.

According to the business description from Yahoo Finance, "Epiq Systems (NASDAQ:EPIQ) provides integrated technology solutions for the legal profession in the United States and internationally. Its solutions streamline the administration of discovery, bankruptcy, litigation, financial transactions, and regulatory compliance matters."

Here are seven reasons why EPIQ has value at under $11 a share:

  1. The stock is selling at the bottom of its five-year valuation based on P/B, P/E, P/CF, and P/S.
  2. EPIQ yields a solid 2.5% and has roughly doubled its dividend payout over the past few years.
  3. Earnings are going in the right direction. The company made 87 cents a share in FY 2011 and is projected to earn $1.01 a share in FY 2012 and $1.13 in FY 2013.
  4. The company has little analyst coverage, but William Blair did initiate the shares as an "outperform" in late May.
  5. Analysts expect over 25% revenue growth in FY 2012, and around 10% sales growth in FY 2013. It has a five-year projected PEG of around 1 (1.03) as well.
  6. EPIQ is selling at less than 10 times forward earnings, a significant discount to its five-year average (18.7).
  7. The stock has good technical support at these levels (see chart below).

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EPIQ over the next 72 hours.