Tough Times for Small Companies

It truly is a great privilege to look for exciting public companies on a daily basis. When you follow the stock market day-in and day-out, you really develop a “gut” feel for the trading action, and you do come across some truly great companies.

Very often with smaller companies, it takes a considerable period of time to get all the right components in place so it can grow. Then, its growth pattern is sporadic, as company management has to deal with supply issues and what is always more important, demand issues from customers (or a lack thereof).

One interesting small company that recently crossed my desk is Callidus Software Inc. (NASDAQ/CALD). Trading around $5 per share, this micro-cap company is based in San Jose, California, and sells specialized software that helps a company calculate and manage incentive-based compensation for employees.

The company’s products are a dream for any human resource department that has to keep track of sales quotas, pay-for- performance compensation, and even customer satisfaction data.

Callidus Software has experienced some tough times in the past, having grown its business successfully, only to see it contracted and turn out net losses.

Now, the company’s operations are on the mend and revenues are growing once again. The company is still generating losses, but it has lots of cash in the bank.

So, here is an example of a company with great products that’s having a tough time getting on a solid growth path. Often with small companies, they never really become successful, even though that have something great to offer.

It remains to be seen if Callidus Software can turn itself into something great. If I was running a larger information technology company, I’d buy the whole company right now.

Perhaps this is how things will turn out for Callidus Software. It happens all the time in the marketplace. A small company has great products to sell, but it just can’t make it to the big-time. This is how the General Electric’s of the world keep growing–they just buy up a whole bunch of smaller companies with great products to sell.