In the tech arena—which is now filled with big players, Magic Software Enterprises Ltd (NASDAQ:MGIC) doesn’t get much investor attention. After all, the company has a market capitalization of about $800.0 million, meaning it’s not big enough to make headlines often in financial media.
However, going after the big-name, hyped-up stocks may not be the most prudent move. As we saw with the recent correction in the Nasdaq Composite, the most heavily sold-off stocks were the ones that had previously enjoyed the biggest parabolic bull runs.
Of course, when there’s a market-wide sell-off, no stock is immune. But for investors who are eyeing the growth in the tech world, Magic Software stock could represent a serious opportunity.
Headquartered in Or Yehuda, Israel, Magic Software Enterprises Ltd is in the enterprise software business. The company provides enterprise-grade application development and business process integration software solutions, as well as a broad range of integration and IT professional services.
While Magic Software is an Israeli company, it has built a global presence. The company earns 48% of its revenue from the U.S., 40% from Israel, seven percent from Europe, four percent from Japan, and one percent from the rest of the world. (Source: “Financial Fact Sheet,” Magic Software Enterprises Ltd,” last accessed March 10, 2021.)
And because the company is listed on both the Tel Aviv Stock Exchange and the Nasdaq Global Select Market, it’s easy for American investors to buy and sell its shares.
One thing that makes Magic Software stand out among the smaller tech stocks is that it has built a solid position in its operating market. The company has big-name customers from a wide range of industries around the globe, including BNP Paribas SA, Boston Medical Center, Coca Cola Brazil, Vodafone Iceland, the Japan Chamber of Commerce, and Adidas Canada.
In terms of its financials, Magic Software has been traveling on a nice growth trajectory. In 2012, the company earned $126.4 million in revenue. In 2019, it earned $325.6 million. That’s an increase of 158%! (Source: “Digital Transformation Solutions & Services: November 2020,” Magic Software Enterprises Ltd, last accessed March 10, 2021.)
Now, we know that 2020 was a very different year compared to previous years because of the COVID-19 pandemic. But for Magic Software, the growth momentum kept on going.
Just take a look at the company’s latest earnings report and you’ll see what I mean.
Fourth-Quarter Earnings Report
In the fourth quarter of 2020, Magic Software generated $104.6 million in revenue. The amount not only represented a 15% increase year-over-year, but also set a new record for the company. (Source: “Magic Reports Fourth Quarter and Full Year 2020 Financial Results with Record-Breaking Annual Revenues of $371.2 million – a 14% Year Over Year Increase,” Magic Software Enterprises Ltd, March 8, 2021.)
The bottom line was even more impressive. Excluding special items, Magic Software’s adjusted earnings came in at $10.3 million ($0.21 per diluted share), up by a whopping 63% from the $6.3 million ($0.13 per diluted share) in the year-ago period.
In full-year 2020, Magic Software’s revenue surged 14% to $371.2 million, also marking a new record. Meanwhile, its adjusted profits grew by 32% to $37.2 million ($0.76 per diluted share).
Here’s the most interesting part: in its earnings press release, Magic Software Enterprises Ltd said the following:
In accordance with its dividend distribution policy, the Company’s board of directors declared a semi-annual cash dividend for the second half of 2020 in the amount of $0.21 per share and in the aggregate amount of approximately $10.2 million, which together with the dividend distributed for the first half of 2020, reflects 75% of the Company’s net income attributable to Magic’s shareholders for the year.
We know that when it comes to growth investing, investors are aiming for big returns, and these dividends don’t seem like much. However, keep in mind that we’re living in a time when earnings are often adjusted, but dividends still have to be paid in cold, hard cash.
In other words, a dividend increase—especially from a company in a fast-changing industry like tech—might represent a more genuine sign of strength.
Besides, given the market volatility, who doesn’t want to earn some extra cash returns?
Magic Software Enterprises Ltd (NASDAQ:MGIC) Stock Chart
Chart courtesy of StockCharts.com
Despite not being a well-known ticker, MGIC stock has delivered some serious returns to investors. Since last April, Magic Software stock has soared by more than 100%.
And there’s a good reason to keep liking this tech stock: for 2021, Magic Software Enterprises Ltd expects to earn $420.0 to $430.0 million of total revenue. Those numbers would translate to another 13% to 16% of top-line growth from 2020.