The first Monday of the New Year is upon us and as we head into 2014, we continue to look for opportunities which exist in the stock markets. We, at Amigobulls always look for financially strong companies at attractive valuations. We have maintained a positive outlook on Support.com Inc (NASDAQ:SPRT) and today we take a look at what to expect from this turnaround company over 2014. The company’s positive change in both the topline and bottom line failed to drive any significant increase in SPRT stock price, which was down 7% in FY 2013.
SPRT Stock - Revenue Growth & Profitability Analysis
We now look at the fundamentals of the company and compare its valuations with industry peers in order to develop fairly accurate expectations for 2014. Let’s start by reviewing the company’s performance in 2013.
Support.com Inc had an average year-on-year revenue growth rate of 21.3% over the Last twelve months. The company also saw profit margin improvements which resulted in substantial increase in the earnings per share (EPS). The EPS of the company increased to 17 cents in the last twelve months compared to a year ago loss per share of 5 cents. The earnings increase mainly due to the company’s higher margins on signature support product. The fundamentals v/s SPRT stock price movement adds to the weight of the bulls argument as the positive changes in the fundamentals haven’t been reflected in any significant price gains. The table below shows the one year change.
|Revenue Growth YoY||21.3%|
|Year ago earnings||-0.05|
|Change in EPS||0.22|
The chart above clearly shows that the company’s revenue growth and margin expansion haven’t really caused any resultant jump in SPRT stock price, which we believe could be a case of an undervalued company.
SPRT Stock Valuation
Let us now take a look at the company’s current valuation multiples vis-à-vis its industry peers.
|Company||Price earnings ratio||Price sales ratio|
|Service Source International (NASDAQ:SREV)||NA||2.06|
|Constant Contact (NASDAQ:CTCT)||96.99||3.35|
As we can see, on a peer-to-peer relative valuation, SPRT stock has a Price to sales (P/S) multiple of 1.99 compared to the average industry P/S of 2.99. The company appears attractive at its current price levels and we will not be surprised to see the stock price gain as the turnaround at the company continues into 2014.
On a cautionary note, the company might see a margin contraction as the company phases out its Signature support programme in Q1 2014. As discussed in the Q3 2013 conference call, the company expects to do higher business in terms of revenue growth, which will in turn offset the margin hit it will take following the phasing out of Signature support. However considering the management and its good work of turning around the company coupled with the strong fundamentals of the company, we continue to hold a long term positive outlook on Support.com and will be keenly following the company’s progress over the coming quarters.
Support.com Inc has been on our positive watchlist for over six months. SPRT stock couldn't make it to our top stock list due to its small size, which adds to the overall risk of investing in the firm. You can view our top stock picks and positive watch-list here.
To see SPRT current stock price movement, please check SPRT stock chart.