Click Commerce is one of the many stocks in my portfolio that has fallen like a stone in recent weeks, but I have never considered my purchase of Click to be a mistake -- it's just a wildly volatile and very small cap stock that the market as a whole has not yet really gotten a handle on -- and, frankly, had left for dead years ago. I was afraid that maybe I didn't understand the company well enough, so I did some more reading of their filings and listened to some presentations their CEO gave at a few conferences this year ... and I liked what I saw and heard.
So I purchased more Click Commerce (CKCM) on October 13, 2005 at $13.60.
I first bought CKCM back in June for $24.90, so with this larger purchase my average cost per share is about $16. With earnings for next year looking pretty likely to be around a dollar, I'm quite happy with that multiple for such a fast growing company.
This stock has nearly tripled in the last year, but also has fallen by more than 50% in two months -- that's the kind of stock that makes most people's noses bleed, but I think owning this kind of company is one of the better ways to beat the market. Virtually uncovered by analysts, insiders/management with very large holdings, a high short ratio based largely (as far as I can tell) on it's quick appreciation, and huge sales and earnings growth in a growing market. And we can buy them today at about the same price/sales ratio as Seibel or Oracle -- Oracle's a fine company, sure, but I expect little CKCM to grow a heck of a lot faster and I think a perfectly logical market would place more of a premium on that.
Click Commerce is a turnaround story, to be sure, and it is definitely still finding it's equilibrium ... but the turnaround is really already well underway. Not too long ago they were a dot-com bomb, teetering on the edge and not taken seriously by anyone -- they even had to do the dreaded reverse stock split.
Today, they have a great stable of clients on board (Home Depot, to name one) and they have now laid down a nice series of eight quarters of revenue growth and positive earnings. And while they are being touted as a RFID play (Radio Frequency ID, the technology that Home Depot, Wal-Mart and other big retailers are starting to require for inventory tracking), they really provide a much more complete line of collaborative commerce solutions ... though wide RFID adoption will certainly dramatically increase the size of their addressable market.
Click Commerce does not make barcode/rfid readers or the tiny little antennas that are actually affixed to price tags -- there are some promising companies that do, like Zebra Technologies (NASDAQ:ZBRA), but I don't think it's clear yet whose technology or standard is going to be important in this field, or if there are defensible differences between the various kinds of RFID implementations that would make one of those companies a better investment than the others.
No, what CKCM does is license and host software to enable collaboration between companies and suppliers -- sometimes that's part of an RFID implementation, but even before RFID is widely in use this kind of collaboration is critical. At the most basic level it's something like a vendor checking inventory at a supplier automatically to know whether or not they can sell a product, or take the example the CEO used at a presentation a few months ago of an independent plumber out on a job, identifying a product he had to work on, checking the manufacturer specs via his Blackberry to see what parts are needed, then linking through to see which suppliers have it in stock in the area so he can pick it up to make the repair. Now I can't quite picture my plumber doing this just yet, but I definitely see how this can add some real value if companies can be convinced to share this information for their own benefit.
Click Commerce has had a wild ride, to be sure, but they appear to be very nicely situated for the rise in RFID usage and the increasing need for companies to develop more collaborative networks for data sharing and management. They have made some good acquisitions over the years, including some strong, small RFID players earlier this year, and they are likely to do more acquiring of niche players as they move forward. Currently, debt is not so bad and could be easily paid off with one year's free cash flow at this rate, so they have plenty of flexibility. Dilution has been pretty significant over the past couple of years, but that's to be expected for a serial acquirer -- and they seem quite disciplined on that front, aiming to make deals only if they would be easily absorbed and accretive to earnings within a very short period of time.
So there you have it -- massive moves up and down and a stock that may well be being manipulated by day traders and certainly has a big short position (or at least had one, before this latest collapse in the stock price), but also has quickly growing sales and earnings, relationships with some excellent customers, riding the crest of an important new wave in commerce and with a subscription and licensing model that encourages retention of customers and steady revenues, and with strong, charismatic and committed CEO who is motivated by ownership to reward shareholders in the long run.
For a tiny company, CKCM has a pretty overwhelming array of initiatives and products -- a glance at their web page doesn't give you a nice clean understanding of the company as a "pure play" in RFID or anything else, which I expect is also helping to keep some investors away. That's OK, more for the rest of us. I like that they're able to offer such an array of products and services to a wide variety of industries -- they're a small company, it's great that they have the flexibility to take advantage of any profitable customer they can acquire.
To sum up, I'm pretty happy to buy a company that grew earnings at over 100% last quarter and that has the potential for further rapid growth, at a market multiple (PE of about 16 today) -- if there were more analysts covering this tiny company (less than $200 million market cap after this latest fall), I expect they'd be piling on with buy recommendations.
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