Is TIBCO Software's Stock Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does TIBCO Software (NASDAQ: TIBX  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell TIBCO's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at TIBCO's key statistics:

TIBX Total Return Price Chart

TIBX Total Return Price data by YCharts.

Criteria

3-Year* Change 

Grade

Revenue growth > 30%

61.1%

Pass

Improving profit margin

(40.6%)

Fail

Free cash flow growth > Net income growth

97.5% vs. 65.2%

Pass

Improving EPS

69.2%

Pass

Stock growth (+ 15%) < EPS growth

113.4% vs. 69.2%

Fail

Source: YCharts. *Period begins at end of Q1 2010 (February).

TIBX Return on Equity Chart

TIBX Return on Equity data by YCharts.

Criteria

3-Year* Change

Grade

Improving return on equity

50.6%

Pass

Declining debt to equity

1,060%

Fail

Source: YCharts. *Period begins at end of Q1 2010 (February).

How we got here and where we're going
TIBCO's been growing quickly, with good improvement on its fundamentals. However, a share price that's pulled away from its earnings growth and exploding debt to equity (although the ratio is still a manageable 0.6) keep the company from earning a better score. Four out of seven passing grades isn't a great performance, but with a track record like this, we should expect that score to improve soon. How might TIBCO get there?

To understand the opportunity, it helps to take a look back at the trend TIBCO's riding to greatness: big data. The growth of big data was one of my top tech predictions for 2012, but the outcome of that call seemed to be a bit ahead of the curve. That's not necessarily because the demand isn't there -- indeed, TIBCO, Splunk (NASDAQ: SPLK  ) , and IBM (NYSE: IBM  ) all impressed the Street with the strength of their analytics operations. Rather, it's because big data is really "difficult data," in the sense that it's really not that easy to find qualified workers for the field. A glance at these companies' job postings makes that evident. TIBCO has nearly 80 openings in its U.S. offices alone, and the smaller Splunk has about two dozen openings for big data-focused jobs. This might not be such a big problem for the more diversified IBM, but without the right people in place, TIBCO won't be able to take full advantage of its unique position.

On the other hand, if TIBCO does find the right people, its opportunities remain substantial. The company may have slowed down, but my fellow Fool (and TIBCO booster) Anders Bylund points out that macroeconomic headwinds can stop even the strongest big data deployment. Being such a new field, data analytics still has to argue that limited budgets can benefit from its use, but the argument is harder to make than something as simple as "if we buy these ads, we'll get more customers." Big data is a subtle strategy, and it'll take time for the whole world to catch on. In the meantime, that can cause some choppiness as short-term investors flee temporary weakness, overlooking the long-term potential of TIBCO's service in a data-driven world.

Putting the pieces together
Today, TIBCO has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

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