Explore Covisint, a Small Cap Recently Spun Off From Compuware
Shares of Covisint (NASDAQ: COVS) became available to the public late September.
After surging to $14.80, shares have returned near their IPO price, a pivotal level. Before the offering, Covisint was owned solely owned by Compuware (NASDAQ: CPWR), who now owns an 82.4 percent stake.
Covisint offers corporations a platform on their cloud (PaaS, or "platform as a service"), which allows them to manage complex global relationships. The highly scaleable solution integrates with on-premise solutions, and gives users the capability to customize it for organizational goals.
One of Covisint’s core competencies is security. As stated in their S-1, “We believe our platform provides us with significant competitive advantages by addressing the unique security, identity and access management, data exchange and compliance needs of large scale external engagement models.”
Because the solution is delivered via the cloud, security is especially important -- as corporations have suffered huge losses from data theft. If Covisint can prove to potential customers it is the most secure system, it will have a huge edge in securing market share.
Along with expanding its customer base, the company plans to offer additional products to its customers and expand the use of systems already in use. New customers are acquired primarily with a direct sales force and through channel partners.
Covisint’s current target sectors include automotive, healthcare and energy; however, the company notes it is working to expand industries. The automotive industry made up 57 percent of 2012 revenue.
Covisint has roughly 3,000 customers, but investors should note General Motors (NYSE: GM) makes up roughly 35 percent of the company’s revenue. The loss of GM as a customer would be disastrous for Covisint.
Per the most recent quarter, ended September 30th, 85.7 percent of revenue was domestic. This suggests significant expansion opportunities to European and Asian automakers.
When looking at the financial data provided in the company’s S-1, investors hould keep in mind that the split from Compuware had a huge impact on expenses, sending administrative and general costs roughly 50 percent higher in 2012. The company also points out these costs may increase over time.
Because the company is in a transformative period, revenue figures are more reliable than income. However, note that the company does not expect to be profitable before fiscal 2014.
Covisint’s sales are growing quickly and steadily. Since 2010, revenue is up 84.6 percent to 74.7 million. Looking at the most recent quarter, year over year revenue grew a whopping 19 percent.
The balance sheet showed 99.2 million in current assets, giving Covisint several quarters to become profitable before having to worry about additional funding (2013 net income was a 3.3 million dollar loss).
Insiders and Institutions
Over the past several weeks, mutual funds and institutions have built up a 3.5 percent stake in the company, for a market value of approximately 16 million. The vast majority of shares are still owned by Compuware.
The company has seen just one insider transaction since its IPO; the CFO purchased 1,000 shares at $12.66.
As previously noted, shares are near the IPO price after an expectedly volatile one-and-a-half months of trading. When shares revert to this level, they typically spike upward or downward. In terms of Covisint, shares dropped below the IPO price in mid-October before shooting higher.
With consistently rising revenue, analysts expect the company to turn profitable. Key factors as to when that will take place include changing general and administrative costs, and R&D spending.
Shares closed at $12.29 Friday.
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