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On Friday, while I was checking the list of top percentage gainers from the NASDAQ, I came across comScore (NASDAQ:SCOR), a stock that I have not previously reviewed, and liked what I saw. I purchased 280 shares of comScore (SCOR) at $21.505.

SCOR traded a bit erratically on Friday and closed at $20.60, up $1.52 or 7.97% on the day. I am a bit 'underwater' on this stock, with an unrealized loss of $0.905 or 4.2% since my purchase earlier the same day!

Let's go over this stock, and let me explain why COMSCORE IS RATED A BUY

What exactly does this company do?

According to the Yahoo "Profile" on comScore, the company

...provides a digital marketing intelligence platform that helps customers make informed business decisions and implement digital business strategies in the United States, the United Kingdom, France, Germany, and Canada. Its products and solutions offer insights into consumer behavior, including objective, detailed information regarding usage of their online properties and those of their competitors, coupled with information on consumer demographic characteristics, attitudes, lifestyles, and offline behavior.

How about the company's latest quarter?

It was the release of second quarter 2008 results after the close of trading that drove the stock higher Friday. Total revenue for the quarter climbed 38% to $28.8 million, from $20.8 million in the prior year same period. Net income climbed 38% to $1.7 million from $1.24 million the prior year. Earnings per share came in at $0.06/share compared to $-0- the prior year. Excluding a recent acquisition of M:Metrics, this was $0.09/share.

The company beat analysts' expectations of $0.07/share on $27.69 million in revenue according to Thomson Reuters.

Topping off the rest of the good news, the company also raised guidance for the upcoming third quarter.

For the third quarter, comScore expects a profit of $0.01 to $0.02 per share, or $0.13 to $0.14 per share when excluding items, on revenue of $30.2 million to $30.7 million.

Analysts, whose estimates typically exclude special items, expect a profit of $0.08  per share on $29.5 million in revenue.

However not all of the news was good as the company, while raising 2008 revenue expectations to $119.7 to $120.4 million (ahead of analysts who were expecting $116 million), did lower earnings to $0.22 to $0.23/share (or $0.71 to $0.73/share on an adjusted basis), while analysts had been expecting $0.36/share.

One analyst reiterated his "Buy" rating--as reported:

In a note to investors, Jefferies & Co. analyst Youssef H. Squali reiterated his "Buy" rating for comScore and raised his price target by $1 to $28, saying that demand for the company's products is strong despite a difficult economic environment.

 "While not cheap, comSore is a compelling value considering its sound fundamentals, leadership position in a growing segment of the Internet and relative resiliency to a weakening economy," he said.

What about longer-term results?

Examining the Morningstar.com "5-Yr Restated" financials on SCOR, we can see the steady picture of revenue growth from $23 million in 2003 to $87 million in 2007 and $95 million in the trailing twelve months [TTM].

This company is just turning profitable with losses diminishing from $6.96/share in 2003 to break-even in 2006, $0.88/share in 2007 and $0.96/share in the TTM.

No dividends are paid and the company aggressively expanded its shares outstanding in 2007 to 18 million from four million in 2006.

Free cash flow is positive and growing with $3 million in 2005, $9 million in 2006, $18 million in 2007 and $22 million in the TTM. The balance sheet is solid with $54.0 million in cash and $76 million in other current assets, which when compared to the $45.5 milllion in in current liabilities yields a current ratio of 2.86.

What about some valuation numbers?

Checking Yahoo "Key Statistics", we can see that this is a small cap stock with a market capitalization of only $589.63 million. The trailing p/e is a bit rich at 28.07, with a forward p/e (fye 31-Dec-09) estimated at 39.62. The PEG (5 yr expected) is also richly priced at 2.29.

Utilizing the Fidelity.com eresearch website for some additional valuation numbers, we can see that the Price/Sales [TTM] is reasonable relative to its peers, with SCOR coming in at 6.03 relative to an industry average of 7.5.

When measured by the Return on Equity [TTM], the company also does well relative to its peers coming in at 41.24% vs. the industry average of 28.31%.

Returning to Yahoo, we can see that there are 28.62 million shares outstanding but only 8.31 million that float. As of 7/10/08, there were 2.28 million shares out short, representing 5.2 trading days of volume (the short ratio). This is well above my own '3 day rule' for short interest, so we may have actually been seeing a bit of a short squeeze on Friday.

No cash dividends are paid and no stock dividends are reported on Yahoo.

What does the chart look like?

The chart is actually one of the weakest findings on this particular stock. Reviewing the 'point & figure' chart on comScore from StockCharts.com, we can see how the stock price actually peaked in October, 2007, at $42/share, before dipping all of the way down to $17.5 in March, 2008. The stock has recently been attempting to move higher, breaking through resistance and and making higher lows, but the upward move is certainly not confirmed yet.

  

 
Summary: What Do I Think?

Well, I like this stock enough to buy some shares! Seriously, it is a very small company in a very interesting niche doing research on internet traffic. The company certainly also has to deal with Google (NASDAQ:GOOG), the '800-pound gorilla' in the field of internet traffic. Its price has been very volatile and recently has been under pressure.

However, the latest quarter was strong, beating expectations and the company also raised guidance. Its Morningstar.com numbers show a certain consistency in improving financial results that I like. Valuation appears a bit rich, but the company is just turning profitable. Finally the chart, while recently a bit more optimistic, is far from being over-extended.

Disclosure:  The author owns SCOR.

Source: Strong Quarter and Improving Financial Results Make ComScore a Buy

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