I first bought shares in SMSI (Smith Micro Software, Inc.) in March 2006. I sold this position in the Summer of 2007 on some impending news that I thought would hurt the share price. I continued researching this company in the interim and recently (March 2008) initiated a position on a dip in share price. The next three-to-six months will be critical for this company (and its leadership), but I believe there is an interesting BUY opportunity for the investor comfortable with a little bit of risk. Attached is my evaluation of SMSI (a pdf document), including an analysis of their most recent conference call discussing Q2-2008 results:
On August 24, 2008, In Investing, By Mike
On January 31, 2008, In Investing, By Mike
I had a conversation the other night with Kristi regarding the company she works for. She had been asking me for investing advice lately and I decided the first place we’d start would be looking at her current portfolio. She has a very lopsided portfolio currently (not always a bad thing) that is dominated by BLKB. I had already been reviewing this company a bit anyway and so I dug a little deeper for her. I found several points that worried me (and should worry her). First of all, Blackbaud, as of late, has been buying their revenue growth. This means their growth is non-organic – they are paying for new customers and new revenues. This is not necessarily a negative in general, but it is in this case. For instance, from 2005 to 2006, BLKB’s revenues grew 15% and then from 2006 to 2007 their revenues grew 35%. But, this is all top-line growth. If you dig deeper, you find out that this revenue growth has come at quite a price. Blackbaud’s net profit margins have fallen from 20% in 2005 to 12% in 2007. This is the number that counts because earnings are computed from net profits, not from revenues. Investors want earnings growth – lots of it.
Additionally, Blackbaud has spent less on R&D consistently over the past three years (not surprising since they are trying to buy innovation from the outside). The final nail in the coffin was checking out the P/E ratio which is sitting at nearly 40! You can’t really look at the P/E ratio in a vacuum; you should always compare it to earnings growth rates. Most analysts are expecting an earnings growth rate of about 20% through the end of fiscal year 2009. With a current P/E of 40 and an earnings growth projection of 20% through the end of 2009, I would say that Blackbaud is grossly overpriced at around $27.
I recommended to Kristi that she sell all of her shares.
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Graph below was added November 5, 2008 to support a recent comment below.
Click on image for larger version.
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On December 28, 2007, In New Year's Resolutions, By Mike
Here are my resolutions for the year of 2008.
Resolution 1: Eat fast food exactly four times in 2008.
Comments: Two of the four meals will be from Arby’s (the beef & cheddar combo w/ curly fries and a jamocha shake). One meal will be from Wendy’s (the spicy chicken combo w/ fries and a medium frosty). The fourth meal will be a supreme pizza with pan crust from Pizza Hut.
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