Did a little thinking: when I buy a stock what do I look for, what is a perfect stock. The things in caps are what I look for and the comment beside it is what I've discovered about NTWK:
-IT'S INEXPENSIVE RELATIVE TO ITS VALUE - NTWK has a forward pe of 6 at a 2011 eps of .25 with today's stock price of $1.55
-IT'S A SOFTWARE COMPANY - It has high gross, operating and net margins (70, 40, 14 last qtr) that are going higher (75, 45, 25) and is frequently bought out
-IT HAS HIGH BARRIERS TO ENTRY IN ITS SPACE - NTWK is in a niche market that is expanding, has 15 years of software development into its flagship NFS enterprise system, and its products are high quality and rated ISO and CMMI compliant.
-IT HAS COMMITTED LEADERS WHO OWN THE STOCK - The three Ghauri brothers manage the three key parts of the business, they bought 1m shares in May, they see the stock is undervalued and announced a stock buyback program on July 27 that is just beginning.
-THE COMPANY IS GROWING - NTWK's revenues were up 38% last year and will be up 10-20%+ for the next five years, has 90% of the market in China, has a stream of new orders from the US and has just announced a major expansion with Mercedes Benz.
-GENERATES HIGH LEVELS OF CASH FROM OPERATIONS - In 2010 NTWK generated $8.6m cash from ops of $36.7m revenue (23%) and in 4q10 generated $4.7 cash from ops of $10.7m rev (44%)
-IT HAS MULTIPLE REVENUE STREAMS AND NO MORE THAN 10% OF REVENUE COMES FROM ANY CUSTOMER - NTWK receives the majority of its revenue from three major streams, Licenses, Maintenance and Services. It sells all three on almost every contract. This will also create an annuity stream as NTWK announces an upgrade to its flagship NFS enterprise system. It is expanding in China, broader in Asia and the US. It is expanding into broader financial services from just leasing and sees itself as the next SAP. No customer contributes more than 10% of revenue today.
-IT HAS A GROWING BACKLOG -NTWK's backlog is its highest in history and will grow further with the addition of upgrades to the NFS enterprise product to be announced shortly.
Analysts will always find both negative and positive aspects in a company depending on which way they desire to influence their position. No one can deny there is not a form of manipulation across the entire market, and the US market integrity has forever been under scrutiny, even since its inception. The company has taken some heavy hits lately. Maybe its new officers can keep the company from more PR blunders and for gods sake, stay away from anymore firms like RED CHIP!
-THE PERFECT STOCK BELONGS TO A COMPANY THAT HAS NEVER LOST A CUSTOMER - In 15 years NTWK has never lost a customer and is growing its base of 150 customers world wide.
-IT IS US BASED - The most developed financial markets in the world are in the US and NYSE and NASDAQ stocks are highly valued and considered among the safest places to invest in equities. NTWK is based in California, has been around for 15 years and on the NASDAQ for 12 of those years.
-IT HAS A LOW NUMBER OF SHARES - NTWK has a fair number of shares considering its revenue. If it can grow revenue by 10-20% over the next 5 years, it should keep the stock growth to 5% or less idealing buying back shares with excess cash.
-IT HAS NO DEBT - Current ratio is 1.65. Idealy it should be 2 or better. Again, the growth path that NTWK is on should provide more than enough cash in the next couple of years to reduce debt.
-IS NOT AN IPO, HAS BEEN AROUND AND HAS A TRACK RECORD - 15 years and counting as a US based company with a large development lab in Lahore and offices throughout the wolrd. It is expanding its workforce rapidly in China.
-IT HAS A DEEP R&D CAPABILITY/DEVELOPMENT LAB THAT INTRODUCES LEADING EDGE PRODUCTS - With their ISO and CMMI ratings, the company's development lab in Lahore is of very high quality for a small company. It invested more than 3 years to bring the NFS follow on product along that is in Beta and will most likely be broadly announced by year end. That will generate significant new orders and interest in the company's capabilities. It's new SAP procurement search engine is leading edge. It is building larger alliances with Mercedes, Atheeb in Saudia Arabia, and is competing for very large contracts in Pakistan. It has broad language translation for its products.
IT IS NOT SO WELL KNOWN AND VOLUME IN SHARES IS INCREASING - NTWK was invisible two months ago. It is now much more widely known, is appearing on a number of small cap investment sheets and volume has skyrockted - from less than 150k shares traded a day to over 1m shares a day on average last month, with 5 days more than 2m.
THE STOCK IS PRICED AT MORE THAN $5 PER SHARE - NTWK was at .79 when I first started buying it on Aug 24. It is the first stock I have bought under $1 in more than 40 years of investing. To me what I saw in August looked irresistible. Based on what I have learned since and what the company has reported in the last month, it looks even more irresistible. I started buying on 8/24 and have added shares every trading day but three since then.