Wednesday, April 27, 2011

Magic Software MGIC Stock Report And Earnings

MGIC reported record breaking results for Q1 2011 with revenues of $25.5M and net income of $3.1M a 29% and 78% year over year increase As the economy recovers, we are seeing early signs of increased investment for technology and IT by small businesses and corporations. It should come at no surprise with corporations currently holding a record amount of cash as a percentage of current assets that now would be a good time for a technology upgrade. Because of this unique situation Magic Software should continue to see strong growth in sales and benefit from the overall recovery.

Magic Software is a micro cap stock, for more micro cap stocks and penny stocks consider following the links provided by Google at the top or right side of this blog.

Magic Software (MGIC)
Recent price: 6.91
Market cap: 210M
52 week range: 2.00 - 9.74

With 2011 Q1 earnings rescheduled for an earlier release on 4/28 MGIC has left investors anxiously awaiting the news. Although they had recorded breaking results the stock price is down today in early trading. In the past year MGIC has seen dramatic volatility as exemplified by its 52 week range. I anticipate this volatility to continue as its market cap is only 210 million. The revenue target to beat is $19M and net income of $1.85M for Q1 2010 I do not foresee any problems with beating those numbers but by how much is the question.

One of the things I love about Magic Software is the fact that their market cap is so low. The company has 14 offices worldwide and a presence in 50 different countries. They currently have no debt and are positioned to see strong organic growth.

(Demonstration of income growth source: MGIC Investors factsheet Q4 2010)

The valuation of the company is difficult, due to the strong movement of the stock price in the recent past. All three of the major valuation ratios would point to the price being expensive but these valuations do no incorporate growth. with a P/E of around 25 and a five year historic average of 15 Magic Software would have to see an annual growth rate of 13.4% for five years to justify its current stock price. This is attainable as they saw revenue growth of 60% from 2009 to 2010.

Another thing to consider is whether or not Magic Software could be a buyout potential. Already having relationships with Oracle and SAP I wouldn't write this possibility off but due to the successful growth of this company they would probably demand a strong premium. 

Follow Us on Twitter

1 comment: