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ClickSoftware Technologies, Ltd. (CKSW) provides mobile workforce management and service optimization solutions. The company offers service optimization suite. Their ClickSchedule enables companies to automate and optimize their service resources; ClickFix, a diagnostic and trouble-shooting tool; ClickAnalyze, ClickPlan, ClickRoster, and ClickForecast that enable corporate decision makers to analyze past performance, monitor current performance, and plan for future service needs; ClickMobile, a wireless workforce management product for monitoring field workforce activities and reducing the labor of dispatching personnel; and ClickLocate that captures the location information of a field service engineer and/or his or her vehicle, and integrates it with ClickSchedule for use in scheduling. ClickSoftware Technologies also offers various consulting services. The company’s products are used by customers in the telecommunications, utilities, financial services, aerospace, defense, semi-conductor, and home service industries. It is headquartered in Israel.

Sector: Technology
Sub-sector: Application Software
Current Price: $5.18

POSITIVES…

Return on Equity (ROE) = 26.6%
A key perfomance measurement of capital efficiency assesses what investment returns management can earn on a company’s existing capital base. A sustained percentage above 20% is considered above average. ROE of 26% is therefore indication of positive sign.

Return on Asset (ROA)= 6.9%
ROA is a measure of how much profit a company earns for every dollar of its assets. Again this reveals how effective the company management is. Few professional money managers will consider stocks with an ROA of less than 5%. ROA of 6.9% is therefore indication of positive sign.

PEG = 1.6
PEG is a widely used indicator of a stock’s potential value. It is favored by many over the price/earnings ratio because it also accounts for growth.

If the PEG is > 1, it indicates that the stock is possibly overvalued or that the market expects future EPS growth to be greater than what is currently estimated. Growth stocks typically have a PEG > 1 because investors are willing to pay more for a stock that is expected to grow rapidly. It could also be that the earnings forecasts have been lowered while the stock price remains relatively stable for other reasons.

Price-to-Sales Ratio = 3.8
Investors are always seeking ways to compare the value of stocks. The price-to-sales ratio provides a simple approach: take the company’s market capitalization and divide it by the company’s total sales over the past 12 months. The lower the ratio, the more attractive the investment.

Debt Level = 0
A rising percentage implies greater financial risk, all else being equal. Rising debt without a rise in Return on Equity should raise warning signals of potential cash flow problems. Percentages above 40%-50% should also be considered a warning. CKSW has ZERO debt making it an attractive investment.

Quarterly Revenue Growth = 31%
ClickSoftware Technologies Ltd. recently said it expects revenue growth in 2007 after the business software company reported strong second-quarter earnings. The company raised its revenue guidance to between $41 million and $42 million, compared with $32.4 million last year.

Recent Contracts
Iceland’s largest utility provider has selected ClickSoftware’s services to consolidate management of its workforce, increase field technicians’ productivity, decrease costs, increase quality of service and strengthen customer relationships. Orkuveita Reykjavikur (OR) is deploying ClickSchedule, ClickMobile, ClickLocate and ClickAnalyze to ensure efficient and effective service delivery for more than half of Iceland’s population in the Reykjavik region. Together, ClickSchedule, ClickMobile and ClickLocate establish the foundation for the real time service enterprise, providing continuous real-time optimization of the service delivery process. This minimizes travel time, improves response during emergency situations, maximizes technicians’ productivity and, ultimately, increases revenues. ClickSoftware’s current quarterly revenue growth is 31%. Such contracts is going to boost their revenue furthur.

Potential Buyout
There are rumors that ClickSoftware could be up for sale in the near future. The company’s stock has gained in recent months, and this could not have been solely due to the fact that it has now announced a strong earnings for the last few quarters. Among the companies that are likely to make an offer for ClickSoftware are, naturally, Oracle Corp., the largest player in its field, but also IBM Corp., with which ClickSoftware has been collaborating. One could even think of hardware companies, such as Cisco Systems Inc., which, lately has been buying software companies too. Any potential buyout will cause the stock price to jump sharply.

NEUTRALS…

Market Capital = 146M indicates low cap stock. Lower cap stocks always carry the risk of higher volatility.

Avg Daily Volume = 530K indicates reasonable trading interest. Too much volume is bad, since it doesn’t help stock move anywhere. Too less volume is bad, since the stock price doesn’t show much movement either.

Revenue = 37.5M indicates low cap stock.

Profit Margin = 8.7% indicates reasonable profit margins.

Price-to-Earnings Ratio (P/E) = 46 indicates a bit pricy stock price.

NEGATIVES…

Earnings Per Share (EPS) = 0.11
Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component of the price-to-earnings valuation ratio. Higher the ratio, more interest it gathers among investors.

Net Income = 3.2M
As a key measure of company profitabilty, a rising net margin assesses management capability to wring out more net income from incremental sales.

Institution Holder = 24%
Higher institutional interest is sometimes bad news for retail investors. The big boys pretty much control the party and retail investors are left helpless. Caution !!

Short Ratio = 0.3
The short-interest ratio is the number of shares sold short divided by average daily volume. This is often called the “days-to-cover ratio” because it tells, given the stock’s average trading volume, how many days it will take short sellers to cover their positions if positive news about the company lifts the price. Lower the ratio, easier it is for the short-sellers to cover their positions. This encourages more investors to take a short position in the stock.

Share Short = 56K and Share Short last month = 6K
A high short-interest stock should be approached for buying with extreme caution but not necessarily avoided at all cost. Short sellers aren’t perfect and have been known to be wrong from time to time. However an increase of 10 times the shares shorted is an area of concern. Caution !!!

Sub-sector Summary
Analyst believe fundamental outlook for the Application Software sub-industry is Neutral. The sub-sector met analyst expectation for 2006. The year 2007 also looks healthy. However future growth will be determined largely by enterprise IT budgets. However since the investment risk involved in the application software sub-industry is less compared to other sectors, it still makes up an attractive investment for prospective investors. It is believed that corporate spending on enterprise/application software as a whole will grow 7-9% in 2007, consistent with trends seen in 2006.

Large buyers of application software are expected to continue to exercise great discipline in their software buying decisions and maintain a keen focus on return on investment and total cost of ownership. In this buyers market, software vendors will face intense competition. Despite that, enterprises will continue to look to software as a way to increase the productivity of their work forces. Over the longer term the rapidly evolving Internet and e-commerce are creating strong demand for software applications that take advantage of these platforms. Many vendors are integrating web features into their products, and exploring new ways to deliver more value to their customers by assuming more of the risk associated with a typical investment in software.

Year to date, the Application Software sub-industry index rose 9.9%, above the 8.6% gain for the S&P 1500.

Conclusion: ClickSoftware has been able to grow revenues from $24.1M to $32.4M from 2005 to 2006. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 55.10% to 43.59%. This was a driver that led to a bottom line growth from a loss of $2.0M to a gain of $2.1M. ClickSoftware has no debt in its capital structure and may have less financial risk than the industry. In 2006, ClickSoftware increased its cash reserves by 27.88%, or $2.9M which is above the Software industry median.

All in all, Big YES to ClickSoftware (CKSW).

(Source: Yahoo Finance, Investopedia)

Investors and traders both use alot of ratios to deduce whether to buy/sell/short a security. With so many ratios to consider, it can get confusing, especially when 2 ratios almost look alike.

Consider return on equity (ROE) and return on assets (ROA). At first glance they do look similar. Both measure some kind of return and is some way are related to the company’s earnings from their investments. Obviously both ratios represent different things. A closer look at these two ratios reveals some key differences. Let us find out more.

Return on equity (ROE)
Of all the fundamental ratios that investors look at, one of the most important is return on equity. ROE is nothing but a measure of how much profit a company generates with the money shareholders have invested. In other words how effectively the company uses the money invested by investors. This tells you alot about how good the management of the company is.

Return on Equity = (Annual Net Income/Average Shareholders’ Equity)

The net income can be found out from the income statement, and the average shareholder’s equity from the balance sheet.

Example on ROE
Lets take an example of a fictional company Weird Inc. Say they had a net income of $5 billion in 2006, and their stockholder equity was $10 billion in 2005 and $30 billion in 2006. To calculate ROE, average shareholders’ equity for 2005 and 2006 ($10 billion + $30 billion$ / 2) is $20 billion. Dividing net income for 2006 by the average shareholder’s equity gives us the return on equity (ROE) of 0.25 or 25%. What this tells us is that in 2006 Weird Inc generated a 25% profit on every dollar invested by investors. Generally savvy investors look for a ROE of at least 15%, so in our example Weird Inc’s performance is impressive. Weird Inc’s management was able to acheive higher profits from the investor money, which speaks of an effective management.

Return on asset (ROA)
So now that we understand what ROE is, lets focus on ROA. ROA is nothing but a measure of how much profit a company earns for every dollar of its assets. Again this reveals how effective the company management is. Assets include things like cash in the bank, accounts receivable, property, equipment, inventory and furniture.

Return on Assets = (Annual Net Income/Total Assets)

Example on ROA
Lets look at Weird Inc again. You already know their net income was $5 billion in 2006. Say their total assets amounted to $200 billion. The net income divided by total assets gives a return on assets of 0.025 or 2.50%. This tells us that in 2006 Weird Inc earned 2.5% profit on the resources it owned. This is an extremely low number. In other words, Weird Inc’s ROA tells a very different story about the company’s performance than its ROE. Few professional money managers will consider stocks with an ROA of less than 5%.

A Look At Debt
The important factor that separates ROE and ROA is debt. Accounting 101 tells us, Assets = Liabilities + Shareholder’s Equity. Say if a company carried no debt (ie. Liability = 0), its shareholders’ equity and its total assets would be the same. It follows then that their ROE and ROA would also be the same. Now say the company took a debt to fund a certain project. What would happen to ROE and ROA ? By taking on a debt, the company increases its assets due to cash coming in. However that would reduce the company’s equity. With reduction in equity, ROE will rise. At the same time, when a company takes on debt, the total assets increases which makes ROA rise too. However ROE would rise above ROA giving us a good indication of the debt levels of the company. Warning: Because ROE weighs net income only against owners’ equity, it doesn’t say much about how well a company uses its financing from borrowing and bonds. Such a company may deliver an impressive ROE without actually being more effective at using the shareholders’ equity to grow the company. ROA because it includes both debt and equity can help you see how well a company puts both these forms of financing to use.

Going back to Weird Inc’s example we can see there is huge difference between its ROE and ROA, indicating an enormous amount of debt, which kept its assets high while reducing shareholders’ equity. In 2006, Weird Inc would have total liabilities of $200bn – $30bn = $170 billion more than 5 times its total shareholders’ equity of $30 billion.

Conclusion: Before trading in a stock, always keep an eye on the ROE and ROA. They are different, but together they provide a clear picture of management effectiveness. If ROA is sound and debt levels are reasonable, a strong ROE is a solid signal that the company is doing a good job of generating returns from shareholders’ investments. ROE is certainly a hint that management is giving shareholders more for their money. On the other hand, if ROA is low or the company is carrying a lot of debt, a high ROE can give investors a false impression about the company’s fortunes.

Ask most investors about how buying a stock can help them build wealth, and the answer you will get is by two ways, stock price appreciation and dividends. However many overlook the third way, stock buyback. Let us find out more about this third way.

The Meaning of Buybacks
A stock buyback is nothing but a company buying back its shares from the marketplace. Buyback can be thought as a company investing in itself. With the extra cash in hand, the company can use it to buy its own shares. These shares are absorbed by the company leading to reduced number of outstanding shares in the market. When this happens, the ownership of each investor increases because there are fewer shares in all. Company buybacks are usually perceived by the market as a positive thing which often causes the share price to shoot up.

Typically, buybacks are carried out in one of two ways:

So why does a company decide to buyback ? Lets find the motive.

Reasons For Buyback

Effects of Buyback to Financial Ratios
With company buyback, the financial ratios start looking good. To begin with, buyback reduces the assets (cash) of the company on the balance sheet since that cash is used to buyback the company stocks. As a result, return on assets (ROA) actually increases. ROA gives an idea as to how efficient a company is at using its assets to generate earnings. ROA is calculated by dividing a company’s annual earnings by its total assets. Also return on equity (ROE) increases because there is less outstanding equity. In general, the market views higher ROA and ROE as positive signs, thus attracting more investors.

Example on Buyback
Let us take an example of a company Money Inc, that has $50 million in total assets and net income of $2 million. Their stock price is $15/share and they have $20 million in cash. Also assume there are a total of 10 million outstanding shares. Now Money Inc. decides to buyback 1 million shares. This means they will be spending $15 million cash and reducing the outstanding shares to 9 millon. Lets see how this buyback changes the ROA and ROE.

The cash holding of Money Inc. dropped from $20 million to $5 million. The total asset dropped from $50 million to $35 million, since cash is an asset. This leads to an increase in its ROA, even though there is no change to the earnings.

Before buyback ROA = $2m/$50m = 4.00%
After buyback ROA = $2m/$35 m = 5.71% (the market often likes higher ROA)

Before buyback EPS = $2m/10 m shares = $0.20
After buyback EPS = $2m/9 m shares = $0.22 (the market often likes higher EPS)

Before buyback P/E = $15 share price/$0.20 EPS = 75
After buyback EPS = $15 share price/$0.22 EPS = 68 (the market often likes lower P/E ratio)

Based on the P/E ratio as a measure of value, the company is now less expensive than it was prior to the repurchase despite the fact there was no change in earnings.

Conclusion: Company buybacks can be good or bad. As is so often the case in finance, there is no definitive answer. If a stock is undervalued and a buyback truly represents the best possible investment for a company, the buyback can be viewed as a positive sign for shareholders. Watch out, however, if a company is merely using buybacks to prop up financial ratios, provide short-term relief to an ailing stock price or to get out from under excessive dilution.

Related Buyback News:

• CVS/Caremark approves $5B stock buyback
• Marsh sees profit slip, announces stock buyback
• IBM: Large Share Buyback Could Give Stock A Boost
• Moneygram Boosts Buyback by 5M Shares