Edgewater
Technology Inc. (NASDAQ: EDGW) is a consulting
and advisory firm, specializing in custom product-based services.
Its
services include business process management, CIO advisory, technology
management expertise in M&A, cloud architecture, infrastructure
redesign, packaged software solutions, business intelligence solutions and
training.
The
company has a tangible book value of $5.03, or 74.3 percent of Monday’s closing
price. Note that the tangible book value does include intellectual
property, which Edgewater has been successful selling in the past and would
likely have value to a strategic buyer.
If
you take the bear case and assume the company could liquidate for just the
tangible book value, the most you are risking is roughly 25 percent of your
investment. Investors are aware of this level; if you look at a chart of the
company, shares bounced right off of the five dollar level before rebounding
upward.
Related: Insiders Of This
Microcap Send A Strong Buy Signal
In
terms of share price appreciation, there are two catalysts that stand out; both
relate to the company’s lack of debt and recent profitability (fiscal years
2012 and 2013). Cash has grown from ten to twenty million over the past two
years, and if income continues to rise (as analysts expect it two) cash will
continue to build up.
One action Edgewater
could take with this cash is buying back its own stock. The company
is currently authorized to buy over ten million dollars of
stock (roughly 14 percent of the market cap). A buy-back a very reasonable
option, because the price/book is close to one, meaning the company would be
taking on little risk.
Another
option is for the company to initiate a dividend. Analysts predict 2015 EPS to
be $0.49, the 2014 to 2015 EPS growth estimate is 22.5 percent, and the average
return of the Russell Microcap Index over the past five years was 27.58
percent. Plugging these numbers into a dividend discount
model (assuming half of EPS is paid as a dividend, growth is 22.5 percent,
and the discount rate is 27.58 percent), a $4.82 value comes out. Adding this
to liquidation value gives a $9.85 price target (note that this is based off of
several assumptions).
Looking
at smart money, institutions have been adding to their stakes; 5.03 percent
last quarter and 9.43 percent this quarter bringing their total ownership to
over 60 percent of the company. Insiders currently own 7.2 percent of the
company, and just got added incentivization with an additional 71.3 thousand
shares granted at the beginning of March.
Shares
of Edgewater Technology closed at $6.81 Tuesday, down 2.58 percent
for the year.
Read more
Benzinga.com small-cap articles: http://www.benzinga.com/news/small-cap
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