Sapiens International Corporation: Up 106% This Year, on Verge of Another Breakout

Sapiens International Corporation: Up 106% This YearShares of Sapiens International Corporation in Strong Uptrend

After the U.S. and China, the next-largest contributor to stocks listed on the Nasdaq is Israel. The country has long produced companies in technology and healthcare, including Sapiens International Corporation N.V. (NASDAQ:SPNS).

Sapiens is a provider of digital software platforms, solutions, and services geared to insurance and financial services companies via the cloud.

Sapiens International’s main user group is insurance companies. Its software helps clients with billing, claims, decision management, illustration and electronic applications, policy administration, reinsurance, and underwriting. Users are located in North America, the U.K., Europe, the Middle East, Africa, and Asia Pacific.

The company has been delivering consistent revenue growth, profits, and free cash flow (FCF).

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Sapiens International stock has been rewarded by the market, up about 106% this year and surpassing the billion-dollar mark in market cap.

But while the quick gains appear to be past us, I view dips in SPNS stock as possible entry points.

Sapiens shares are in a strong uptrend. They broke out at $12.50 in February, followed by subsequent breakouts at $17.00, $19.00, and $21.00 to the current level.

Sapiens International stock is in another sideways channel, with resistance at $24.00.

Chart courtesy of StockCharts.com

Great Fundamentals Bode Well for SPNS Stock

The strong underlying fundamentals support the share appreciation in Sapiens stock.

The company’s revenues increased sequentially from 2015 to a record level in 2018. The compound annual growth rate (CAGR) during this period was 16.5%.

Fiscal Year Revenues (Millions) Growth
2014 $157.5
2015 $185.6 17.9%
2016 $216.2 16.5%
2017 $269.2 24.5%
2018 $289.7 7.6%

(Source: “Sapiens International Corporation N.V.MarketWatch, last accessed December 20, 2019.)

While the revenue growth rate fell in 2018, estimates call for SPNS to grow revenues 11.6% to $324.1 million in full-year 2019, followed by 11.4% to $361.0 million in 2020. (Source: “Sapiens International Corporation N.V. (SPNS),”Yahoo! Finance, last accessed December 20, 2019.)

Along the way, Sapiens reported positive earnings before interest, taxes, depreciation, and amortization (EBITDA) profits.

Fiscal Year EBITDA (Millions) Growth
2014 $23.6
2015 $34.0 43.8%
2016 $34.9 2.6%
2017 $16.9 -51.6%
2018 $42.9 154.2%

(Source: MarketWatch, op. cit.)

Sapiens is profitable on both a generally accepted accounting principles (GAAP) and adjusted earnings-per-share (EPS) basis.

Fiscal Year GAAP Diluted EPS Growth
2014 $0.30
2015 $0.41 36.7%
2016 $0.39 -4.9%
2017 $0.01 -98.2%
2018 $0.28 3,830%

(Source: MarketWatch, op. cit.)

After adjusting for one-time items, SPNS earned $0.56 per diluted share in 2018. This is expected to rise to $0.77 per diluted share in 2019 and $0.87 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

SPNS is also positive in terms of FCF, with a record showing in 2018.

Fiscal Year Free Cash Flow (Millions) Growth
2014 $20.1
2015 $37.6 87.3%
2016 $21.4 -43.2%
2017 $6.6 -69.0%
2018 $25.8 289.2%

(Source: MarketWatch, op. cit.)

Analyst Take

Sapiens has beaten the consensus EPS estimates in six straight quarters, helping to ratchet SPNS stock higher.

Given the price appreciation, Sapiens stock is no longer a bargain, trading about 25 times its 2020 EPS estimate and currently having a price/earnings to growth (PEG) ratio of 3.1.

Longer-term, SPNS stock has the ability to move much higher, so I would consider dips in its price as potential entry points.