Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



1 Software Stock to Buy Now

Shares of NetSuite (NYSE: N  ) are up more than 8% over the past five days on the strength of a good fourth-quarter report and even better 2012 outlook.

The company, which specializes in providing accounting, inventory management, and other operational software over the Web, projected $0.19 to $0.21 in adjusted earnings on $295 million to $300 million in profits. All figures represented an increase over earlier estimates and topped Wall Street's projections.

Yet for as good as that news is, it's a small part of what makes NetSuite a wonderful growth story:




Y-o-Y Growth

Revenue (millions) $236.3 $193.1 22.4%
Adjusted profit per share $0.15 $0.13 15.4%
Free cash flow (millions) $27.69 $11.87 133.3%
FCF as a % of revenue 11.7% 6.1% 5.6 points
Cash / debt (millions) $141.45 / $0 $104.3 / $0 35.6%

Source: NetSuite press release.

Pay particular attention to the cash-flow and balance-sheet data. While revenue and adjusted profits grew nicely, free cash flow and liquidity grew outrageously, thanks to having more customers paying cash upfront for access to NetSuite's platform.

Where this gets most interesting for me as an investor is in comparing NetSuite's free cash flow yield with that of its primary competitors in business software:





Revenue (millions) $72,052 $36,704 $18,489.1 $2,091.5
Free cash flow (millions) $26,735 $12,629 $4,327.4 $96.2
FCF as a % of revenue 37.1% 34.4% 23.4% 4.6%

Source: S&P Capital IQ.

There are two ways to look at this data. First, NetSuite badly trails Microsoft (Nasdaq: MSFT  ) and Oracle (Nasdaq: ORCL  ) when it comes to generating cash from revenue. Second, it's the only one of the two major cloud-computing providers -- with (NYSE: CRM  ) being the other -- to produce a double-digit yield that expanded more than 5 percentage points year. Which is more important? Growth, which is why earlier today I made an outperform CAPScall for this stock.

Do you agree? Disagree? Either way, it makes sense to study how the Internet has changed computing. The Motley Fool recently dug into this trend in a video research brief titled "The Two Words Bill Gates Doesn't Want You to Hear." the report is free, but only for a limited time, so watch it now.

Add NetSuite to My Watchlist for up-to-the-minute Foolish coverage of the stock and your entire portfolio.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Microsoft and Oracle. Motley Fool newsletter services have recommended buying shares of and Microsoft, creating a bull call spread position in Microsoft, and shorting Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1775434, ~/Articles/ArticleHandler.aspx, 7/1/2016 11:56:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 17,949.37 19.38 0.11%
S&P 500 2,102.95 4.09 0.19%
NASD 4,862.57 19.90 0.41%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

7/1/2016 4:02 PM
N $73.12 Up +0.32 +0.44%
NetSuite CAPS Rating: **
CRM $79.83 Up +0.42 +0.53% CAPS Rating: **
MSFT $51.16 Down -0.01 -0.02%
Microsoft CAPS Rating: ****
ORCL $40.86 Up +0.08 +0.20%
Oracle CAPS Rating: ****