10 reasons to own ntwk
1.Fourth quarter EPS of $0.04 soundly beat RedChip analysts' estimate of $(0.00), and its $10.7 million in revenues far surpassed our $7.9 million estimate.
2.Significant cost management and streamlining during the year paid off. Revenues grew by almost 40%, while cost of sales simultaneously fell nearly 20% from fiscal 2009, resulting in gross margin expansion from 35% to 62%.
3.Operating efficiency improved dramatically over last year – cash from operations was up 604% and receivables turnover increased noticeably.
4.NetSol's management has given EPS guidance of $0.15 to $0.20 for FY11, representing 275% to 400% YoY growth from this year's earnings of $0.04.
5.New clients added in the most recent quarter included Mercedes-Benz of Japan, Minsheng Bank of China, Volvo Auto Finance of China, GMAC, GAC-Sofinco, and Sany Corporation of China (the world's largest concrete equipment manufacturer).
6.NetSol signed a Global Framework agreement with Daimler Financial Services in Singapore on September 16, 2010. Details of the contract are not yet available, but it is likely to provide significant new market exposure to the Company.
7.In August, NetSol was recertified as a CMMI Level 5 company, a status it originally achieved in 2006. NetSol is the only Pakistani software company and one of 162 companies in the world, including IBM, Motorola, Boeing, and Raytheon, to be rated CMMI Level 5.
8.FY11 guidance does not include the effect of any potential contracts with the Pakistani government due to the focus on rebuilding infrastructure destroyed by the recent flooding. However, NetSol is still the leading bidder for significant contracts relating to Pakistan's land records management system and the digitization of the nation's military.
9.In responding to a question on the year-end earnings call, CEO Najeeb Ghauri commented that the stock "is very undervalued without question." Open market share purchases by the Company's founders and a 6-month, 2 million share buyback program have implicitly confirmed this belief by management.
10.Mr. Ghauri further acknowledged that NetSol could be an attractive buyout target at its current levels, but that a reasonable takeover valuation would likely be in the $8-$10 range and that management would resist lower offers in the interest of shareholders.
NetSol is growing its sales and adding new world-class clients while the global economy is still floundering in low post-recession growth. It has succeeded in reducing cost of revenue and operating expenses while growing sales, resulting in a significant improvement in efficiency and profitability, and management expects a strong year in fiscal 2011. NTWK is an incredibly attractive investment opportunity at its current valuation around $1. Look for strong price appreciation in the near future as the market begins to recognize this stock's full potential.
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