No-one on the Street is talking about one particular market sector or another these days. No-one is at all excited about any one industry either, and even the enthusiasm for China’s stocks has waned. In this environment, it is difficult to decide where you should put your money.
One area of the stock market that isn’t getting the respect that it deserves is the software sector, as well as the broader technology and telecommunications industries. Right now, there are all kinds of well-managed, growing technology companies that just aren’t getting the attention they deserve.
One company that I’m enjoying following is Open Solutions Inc. (NASDAQ/OPEN). This company sells software solutions to financial institutions, and the stock has an excellent track record on the market.
I always look twice at companies that are successful at selling to large financial institutions simply because these customers have a lot of money! In fact, they have so much money that if a company can do a good job selling to them, it can generate a lot of recurring revenues.
Open Solutions sells the kind of software you might think a financial institution would need. At a bank or other financial business, there are all kinds of account transactions to keep track of, and maintaining the data accurately requires sophisticated technology.
In the second quarter of 2006, Open Solutions’ revenues more than doubled to $107.1 million, up from revenues of $47.1 million in the comparable quarter in 2005. The company’s recurring revenues accounted for 77% of total revenues in the latest quarter.
Net income grew to $4.1 million, or $0.19 per share, up modestly from the net income of $3.8 million, or $0.18 per share, generated in the same quarter last year.
The company recently raised its guidance for fiscal 2006, and the stock has been in an upward trend ever since it listed on the NASDAQ.
Open Solutions is precisely the kind of software company I’m interested in. It has a great customer base with piles of cash, lots of recurring revenue streams, and a track record of success both operationally and on the stock market. Frankly, Wall Street should be more excited about this opportunity than it is.