Blackbaud Inc. (BLKB, Financial) stock is trading near its 52-week high of $63.27. The current price level is important for investors who buy stocks when the price exceeds its 52-week high, based on the feeling that if price breaks out from that level, there will be a “momentum” to bet for a favorable price movement.
This mid-cap stock provides software solutions and related services for nonprofit, charitable giving, and education communities worldwide. Among their recent initiatives, it has launched the first upgrade to its cloud-based solution eTapestry CRM, introducing analytics features that will benefit smaller non-profit organizations, reducing costs and providing flexibility.
Third quarter revenue came in at $158.8 million in the period, up 9.8% from the prior year's $144.6 million. This was slightly under analysts’ expectations of $163.1 million.
In the third quarter, the company reported earnings of $7.9 million. On a per-share basis, EPS of 17 cents decreased by 26.1% in the quarter compared to the same quarter a year ago. Adjusted EPS was 38 cents per share and missed analyst expectations of 39 cents per share.
| Ă‚ | 2014 | 2015 | |||
| Quarterly Data (millions) | Q3 | Q4 | Q1 | Q2 | Q3 |
| Revenues | 144.6 | 152.81 | 146.99 | 156.26 | 158.81 |
| Earnings | 10.38 | 4.82 | 4.29 | 7.04 | 7.91 |
| EPS | 0.23 | 0.1 | 0.09 | 0.15 | 0.17 |
Source: Authors calculations
The numbers suggest that it was not a strong report, and the adverse trend of EPS over the past year has affected the firm.
Longer-term, we can see that revenue has grown steadily from $309.3 million in 2009 to $564.4 million in 2014 and $614.87 million in the trailing 12 months. Operating income came in at $46 million in 2010, increased to $51 million in 2011, then dipped strongly to $19 million in 2012, and rebounded to $52 million in 2013 and $46 million in 2014. In a similar way, EPS dipped from 68 cents in 2010 to 15 cents in 2012. Earnings then rebounded sharply to 67 cents per share in 2013, 62 cents per share in 2014, and 52 cents per share in the TTM.
Although gross margin is declining, free cash flow of $69 million in the TTM, suggests that the company is generating enough cash that is essential for paying a dividend. In fact, the trailing annual dividend yield is 0.75% and is close to a 10-year low.
| Quarter Ended | Dec05 | Dec06 | Dec07 | Dec08 | Dec09 | Dec10 | Dec11 | Dec12 | Dec13 | Dec14 |
| Gross Margin (%) | 69.85 | 70.16 | 64.02 | 61.51 | 60.90 | 59.54 | 57.61 | 54.75 | 53.82 | 51.55 |
Regarding valuation, the trailing P/E is at 124.69x as of Dec. 4, and it is close to a two-year high of 125.16. The PEG ratio is at 16.98, higher than the industry median of 1.96x. The rule is that stocks with lower PEGs are more attractive than stocks with higher PEGs. A higher PEG means that the stock is overvalued compared to its peers. Further, other metrics such as P/B ratio and P/S ratio are close to a 10-year and five-year high.
Finally, I always like to see which hedge funds have long positions in the stock. Chuck Royce (Trades, Portfolio)'s Royce & Associates owns 389,691 shares valued at $21.9 million, held as of the end of the third quarter.
Paul Tudor Jones (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) have initiated new positions in the quarter with 5,500 and 124,899 shares.
Final comment
Looking at the financials, the company has grown its revenue and earnings in a strong way in the past few years. Further, the high free cash flow should indicate an increase in its cash dividend.
Furthermore, the stock price has more than doubled in the past five years, and since those hedge funds have taken a long position, the stock has soared by 13.2%. However, the actual valuation is worrying with very high P/E and PEG ratios.
Although I can get a bit anxious about the past stock price performance, I will maintain my discipline of recommending against buying stocks, even this one, based on the relative valuation and recent financial results, and the feeling that it will not break its 52-week high.
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