MAM Software Could Be on the Verge of a Multi-Year Breakout
Recently I decided to search the speculative micro-cap segment for the next big breakout stock. Of course, there is no guarantee of success in this endeavor, but, as those who go to Vegas would say, it may be worth the gamble.
A candidate that surfaced in my stock screens is MAM Software Group Inc. (NASDAQ:MAMS), a small company with a market value of around $107.6 million. MAMS stock has been moving higher, up 21% over the past three months. Next It could be set to stage a multi-year breakout at $9.00.
MAM Software markets a “Windows” and cloud-based business management software application used by companies to organize and improve business efficiencies.
The past pressure on MAMS stock could be related to the fact that the company’s key area of focus is the automotive aftermarket, but MAM Software Group is striving to diversify.
MAMS stock was added to the Russell Microcap Index in June 2018, a move that helped attract index funds and institutional investors.
A look at the MAM Software stock chart shows the current sideways channel in place for nearly two years. Note the breakout from the previous sideways channel at $7.00 in late 2017.
Chart courtesy of StockCharts.com
If MAMS stock can continue its recent gains, we could finally see a breakout at $9.00.
My Bullish View on MAMS Stock
MAM Software reports in a fiscal year ending at the end of June.
The revenue picture doesn’t stand out at first glance, but the company has managed to report higher revenue in three of the past four years, including a four-year high growth rate in fiscal 2018.
|Fiscal Year||Revenue (Millions)||Growth|
(Source: “MAM Software Group Inc.,” MarketWatch, last accessed March 25, 2019.)
Looking ahead, MAM Software is estimated to record lower revenue growth of 4.8% to $37.5 million in fiscal 2019, followed by growth of 8.9% to $40.9 million in fiscal 2020. (Source: “MAM Software Group, Inc. (MAMS),” Yahoo! Finance, last accessed March 25, 2019.)
A big plus is that MAM Software has been generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA)—as well as generating positive generally accepted accounting principles (GAAP) profits.
That is encouraging for a company of this size.
|Fiscal Year||EBITDA (Millions)||Growth|
(Source: MarketWatch, op cit.)
As I said, MAM Software has been delivering GAAP profits without the need for adjustments. We saw earnings growth from fiscal 2015 to fiscal 2017, prior to a mishap in fiscal 2018.
|Fiscal Year||GAAP Diluted EPS||Growth|
The next two years look positive, with MAM Software expected to report an adjusted $0.29 per diluted share in fiscal 2019, up from $0.27 per diluted share in fiscal 2018. The company is expected to follow that with $0.31 per diluted share in fiscal 2020. (Source: Yahoo! Finance, op cit.)
Another impressive metric for MAMS is the company’s positive free cash flow (FCF), which has grown in the past three years straight—and at a higher growth rate than its revenue.
|Fiscal Year||Free Cash Flow (Millions)||Growth|
(Source: MarketWatch, op cit.)
The fundamental picture and expected earnings growth for MAM Software Group support the case for a higher share price.
Keep an eye on the $9.00 resistance level. A breakout could vault MAMS stock above $10.00 and establish the next higher trading range.