NIC Inc. (NASDAQ: EGOV), a provider of eGovernment services to governments in the US, was recently ranked no. 11 on Forbes’ list of the “100 Best Small Companies in America.” We have been observing the stock for some time and the company had gained close to 38.4% on a Year-To-Date basis. If you are a value investor anticipating reasonable growth on your investments, then you are looking at the right stock. Given the company’s moderate risk characteristics with a beta of less than 1, NIC Inc. has a stable revenue model, since the company derives most of its revenues primarily from the US government. Let us have a look at the company’s financials and understand its future prospects.
- The company’s Q2’13 revenue grew at a 3-yr Compound Annual Growth Rate (CAGR) of 17.4% vis-à-vis EPS 3-yr CAGR of 38.7%. NIC Inc. also enjoys a higher visibility in its revenue driven by government budget on IT spends.
- Over the past three quarters (Dec’12 to Jun’13), the company’s net income margin has increased from 12% range to 16% range. This could be primarily attributed to lesser % spend on its SG&A costs as shown in the chart below:
- Return on Equity stood at an attractive rate of 39.7% on LTM basis; Return on Invested Capital % at 45.0%. From our past experience, we the Amigobulls have observed that the stocks with this kind of returns on ROE and ROIC would typically fetch high returns in the near-term.
Government contractors face uncertainty
Having discussed a few of the positives, one major concern for NIC Inc. is the recent US government shutdown. The biggest concern is that the federal government will be unable to honour the contracts if the debt ceiling is not raised.
In summary, we believe that NIC Inc. would add inherent value to the value investors. Although the stock seems to be trading above industry average (refer to our previous article for NIC’s competitors’ multiples), the EPS growth of the company looks very attractive. We would continue favouring the stock in the near-term.