This was a nice explanation from another poster.
First look at earnings
Q1 = 0.12 actual (0.10 est.)
Q2 = 0.28 actual (0.11 est)
Q3 = 0.21 est.
Q4 = 0.35 est.
Q1 & Q2 were solid beats. History predicts when a company beats eps estimates over the previous two quarters it has an 80% chance of beating over the next two. That is from an old time investor named Marty Zweig.
But for me Operational cash flow is more important than earnings. So let’s look at it.
Q1 = $2.9 million (0.39/share)
Q2 = $6.5 million (0.85/share)
Six months total = $9,428,545 / $1.24/share
Q3 = $6.5 million (guessing same as Q2?) I feel it will be higher
Q4 = $7.1 million (adding 7 cents to eps from Q2– all else remains the same)
Total for year ending 6/30/2013 = $23 million
Average for all stocks today = 7.78x annual op cash flow
Fair Price for NTWK based on op cash flow = $22/share (based on 8 million shares)
EPS estimates for 2014 are 35% higher. Op cash flow should increase by a minimum of that 35%, but with economies of scale, it “should” be higher. But using a 35% increase in op cash flow we get $31 million in 2014 (8.25 fully diluted shares) = $29/share.
Lastly I like to see how much of cash flow that debt is taking. Interest expense in Q2 was $179,932 or roughly 2.75% of op cash flow. An excellent ratio. Companies like this with low debt usually carry a higher op cash flow multiple than 7.78. Typically it should be closer to 9.
Don’t get me wrong, this stock has some negatives. I don’t care for the CFO. It appears he isn’t hedging against currency fluctuations. They got lucky this quarter with a gain. Also, they booked $484,487 ($0.06/share) of income this quarter that should have been booked next quarter or at most, half this quarter. Either way that doesn’t matter. Lastly, they could do a little better job with the accounts receivable. I feel it’s a little high as a percentage of sales.
Hi, I'm new here, having bought in two weeks ago at 8.35. I think what we're seeing with the huge volume increase is funds buying in. I am very impressed with what is happening, and my plan is to hold for a big gain.
Good luck to all...