Redeeming Pegasystems

Once a Motley Fool Hidden Gems pick, Pegasystems (Nasdaq: PEGA  ) has had a bad streak. There was uneven performance in the business, insider sales, and delinquent filings. Despite the distractions, it looks like the company is starting to get its groove back.

Pegasystems develops business process management (BPM) software that helps companies automate rules and policies. To penetrate large accounts, management has formed key relationships with companies like Accenture (NYSE: ACN  ) , Booz Allen Hamilton Inc., and IBM (NYSE: IBM  ) .

On Monday, the company reported its results for Q1. Revenues increased 28% to $37.5 million and license revenues surged 73% to $12.1 million. The license revenues are a key metric because they tend to lead to ongoing maintenance and services revenues.

Over the past year, the company went from posting a $900,000 loss to a profit of $1 million, or $0.03 per share. This happened despite a $4.3 million increase in expenses for sales and professional services headcount.

According to the conference call, Pegasystems says that the sales pipeline is healthy and that demand is coming from both new and existing customers. This is attracting competition from players like Chordiant Software (Nasdaq: CHRD  ) , DST Systems (NYSE: DST  ) , and Oracle (Nasdaq: ORCL  ) . Yet, as seen with the healthy license revenue growth, Pegasystems does have a competitive product offering.

For the full year, the company expects revenues of $140 million to $160 million. Taking the midpoint of the estimate, the shares are trading at roughly 1.6 times enterprise value and that's at a discount to the typical 2 times revenues for enterprise software companies. Taking this all in, I have to say this one is looking more and more like a hidden gem again.

For related Foolishness:

• Pegasystems Takes Wing
• Foolish Forecast: Pegasystems Yet to Take Flight
• Foolish Forecast: Pegasystems Ready to Ride?

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is currently ranked 1,898 out of 28,990 rated players in Motley Fool CAPS.