Skip to main content

i2 Technologies - surprise in the software sector

We're always looking for new ways to sort and filter our stock indicators. We executed the usual weekend Alert HQ process (read about this weeks results) and generated several lists of stocks based on our special screens including: Bollinger Band Breakouts, Trend Leaders and Cash Flow Kings (you can download these lists at the Trend Leaders page). It's always interesting to combine the screens and see what stocks are common across the board.

For today's featured stock I combined the following three screens: the Trend Leaders (stocks registering strong signals using Aroon analysis, DMI and MACD and at least 1% above their 50-day exponential moving average), the Cash Flow Kings (stocks exhibiting a cash flow yield of 25% or more) and the Cash Flow to Debt Coverage above 0.7 screen.

One of the stocks that popped out of this combined screen is i2 Technologies (ITWO). The company provides supply chain management software for manufacturing and planning; transportation and distribution management; merchandising, assortment, and allocation planning; execution, collaboration, and visibility; supplier relationship management; and data management and business analytics.

In terms of selected fundamentals that we looked at in our screens the cash flow yield is 33%, the Cash Flow to Debt Coverage came out at 0.71 and the technical indicators are definitely showing plenty of positive momentum (see the chart below).

Chart of ITWO, 02-13-2009
In addition to the Aroon, DMI and MACD indicators looking bullish, we see the 20-day MA has just crossed above the 50-day MA. Note, however, that RSI is showing the stock to be over-bought.

Despite the momentum indicated by the trajectory of the stock price, ITWO is not really over-valued. The PE is a measly 2, PEG is a moderate 1.37 and the Price-to-Sales ratio is only 0.7, a quite reasonable number. Considering this is a tech stock, these numbers seem all the more attractive from a value perspective.

So what's driving ITWO?

In a word - earnings. According to Yahoo! Financial, the year-over-year quarterly earnings growth is 282%. Not too shabby! The company's 4th quarter earnings beat expectations, rising more than fourfold, helped by a $20 million termination fee they received after ending a deal to be purchased by JDA Software Group Inc. Excluding all one-time items, the company earned $0.31 per share compared to $0.19 in the year before. Analysts had been expecting only $0.22.

Can they keep it up? The following factors provide a hopeful outlook:
  • Management thinks that there is some pent up demand out there. Some customers had held off whle waiting to see how the acquisition by JDA worked out. Now that this situation is clear, management expects certain customers to move forward.
  • The company has the benefit of a steady stream of maintenance fees, much as Oracle does, though it did decrease a bit during this quarter.
  • Management feels that the benefits provided by i2 software in terms of efficiencies and cost savings are just what many companies are looking for in these tough economic times.
  • The company is doing a good job of managing and reducing expenses.
  • The balance sheet is stronger. There is a better cash position and the company may return a dividend to holders or elect to buy back stock.
  • The company is reducing debt.
So i2 Technologies is doing pretty well, having signed a major new customer and extending agreements with several others during this last quarter. The wild card, of course, is the macro-economic situation. The company's products are not cheap nor are they simple to implement. As economic pressure builds on potential customers, it may become more difficult for i2 to sign new customers. Still, the company is healthier financially and is currently building some momentum, both in terms of stock price and in terms of customer acceptance.

i2 Technologies has bucked the trend by posting solid numbers while most other tech companies are showing major year-over-year short-falls. The company is still priced for value and has a decent shot at continuing to grow though probably not as sharply as the most recent quarter. All in all, i2 Technologies seems to be a pretty attractive stock at this time though it would not be unexpected to see the stock pull back a bit after its recent run-up. The company looks like a good candidate for anyone seeking to allocate funds to the enterprise software sector.

Disclosure: none

Comments

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …