Information Analysis (IAIC, Financial) is an interesting value play in the tech sector. The company focuses on modernizing client information systems and consulting (mainly with the government and large tech players). The company has two niches—helping clients modernize software from legacy systems to new software, and developing Adobe electronic forms-related web applications for the Feds. The most interesting thing about the company is, without a doubt, the balance sheet. They have ~11.2 million diluted shares outstanding and a share price of ~$0.16 for a market cap of ~$1.8 million. They have no debt and ~$1.88 million in cash on their balance sheet, so they basically trade for the value of their cash. On a net net basis, they have 4.3 million in current assets and $2.4 million in total liabilities. However, about 1/3 of the liabilities are deferred revenue. If we ignore those as a liability, the company has net net assets of $2.7 million, or $0.2417 per share.
Most companies trading at a net cash basis aren’t that interesting because they are burning cash or losing money at a rapid rate. However, this company is actually pretty profitable. Despite the large cash balance, ROE should come in between 15-20% this year, and the company has been pretty profitable in the past—they’ve had positive operating income four of the past five years (the one year of loss was 2008) and has averaged over $240,000 per year in that time (just above what they earned in just the first nine months of 2010). Plus, with about $6 million in deferred tax assets that sit off the balance sheet, the company won’t be paying taxes anytime soon.
There’s also an interesting catalyst in place—last week, Barry Brooks filed a 13-G with the SEC, saying he owned over 6% of shares outstanding. I haven’t been able to find much about him (ok, anything), but this could represent a catalyst worth keeping an eye on.
However, there are definitely some risks here. Namely, the government accounts for ~90% of the company’s revenue. Obviously, that’s a huge risk, and the ongoing pressure on federal budgets could cut into the company’s sales. Also, anytime a company deals with technology, there is a significant risk of obsolescence, though I think that risk is somewhat minimized given that the company derives more of their revenue as a consultant than as a software producer. Nonetheless, it is a risk.
My Take
The company is certainly interesting. However, it’s not really within my circle of competence, and that makes the risks outweigh the rewards for me. However, investors with an interest in the technology field should definitely give the company a second look.
Originally posted on whopperinvestments.com, where I focus on deep value micro caps.
Most companies trading at a net cash basis aren’t that interesting because they are burning cash or losing money at a rapid rate. However, this company is actually pretty profitable. Despite the large cash balance, ROE should come in between 15-20% this year, and the company has been pretty profitable in the past—they’ve had positive operating income four of the past five years (the one year of loss was 2008) and has averaged over $240,000 per year in that time (just above what they earned in just the first nine months of 2010). Plus, with about $6 million in deferred tax assets that sit off the balance sheet, the company won’t be paying taxes anytime soon.
There’s also an interesting catalyst in place—last week, Barry Brooks filed a 13-G with the SEC, saying he owned over 6% of shares outstanding. I haven’t been able to find much about him (ok, anything), but this could represent a catalyst worth keeping an eye on.
However, there are definitely some risks here. Namely, the government accounts for ~90% of the company’s revenue. Obviously, that’s a huge risk, and the ongoing pressure on federal budgets could cut into the company’s sales. Also, anytime a company deals with technology, there is a significant risk of obsolescence, though I think that risk is somewhat minimized given that the company derives more of their revenue as a consultant than as a software producer. Nonetheless, it is a risk.
My Take
The company is certainly interesting. However, it’s not really within my circle of competence, and that makes the risks outweigh the rewards for me. However, investors with an interest in the technology field should definitely give the company a second look.
Originally posted on whopperinvestments.com, where I focus on deep value micro caps.
