Tic-tac-toe, investors want to know: Will data collator infoUSA (NASDAQ:IUSA) make it three in a row for earnings misses when it reports its fiscal Q3 2006 numbers tomorrow morning?

What analysts say:

  • Buy, sell, or waffle? Just two analysts follow infoUSA. Both rate the stock a hold.
  • Revenues. They predict 10% sales growth in tomorrow's news, for $103.5 million.
  • Earnings. Profits are predicted to grow much faster at 42%. The target is $0.17 per share.

What management says:
The battle between infoUSA and its shareholders, chief among them the Dolphin private equity fund, continues unabated. (To get an idea of the tone of the argument, read over infoUSA's recent attack on Dolphin's leader.) With both parties entrenched in their positions, and infoUSA's board having won the recent proxy battle for the ouster of several directors, though, this situation doesn't look likely to resolve itself any time soon.

In the meantime, we'll continue to watch the numbers at infoUSA. On that front, last quarter, management promised that this fiscal year it will deliver $410 million to $420 million in sales, and $0.75 to $0.85 per share in profits.

What management does:
The trend toward higher margins continues at infoUSA. On a rolling basis, gross, operating, and net margins are all significantly higher today than they were 18 months ago. The net margin number is especially impressive: At 260 basis points higher now than it was then, it means the company is generating 50% more profit from each dollar of sales.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

70.2

70.8

71.0

71.7

71.8

72.4

Op.

13.2

14.6

14.3

15.5

16.5

16.0

Net

5.2

6.3

6.8

7.5

8.2

7.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
infoUSA poses a classic dilemma to the value investor. What do you do when you find a discount-priced company, run by management whose motives you think are suspect?

With its shares currently selling for less than seven times free cash flow (and an enterprise value-to-free cash flow ratio of just 8.2), and a return on equity of 16%, infoUSA looks severely underpriced. On the other hand, as we've discussed in several articles ...

... the people running infoUSA may not have their outside investors' best interests at heart.

On the one hand, this doesn't mean the company won't make for a rewarding investment. CEO Vin Gupta could eventually buy the whole company on the cheap, but still at a higher price than it sells for today, rewarding investors for their patience (and their ethical nose-holding). On the other hand, at The Motley Fool, we have been burned more than once after investing in a good price/bad management equation (see, for example, "DHB: Shades of Tyco?").

My advice: Stay away. Cheap as it is, I just don't see infoUSA stock rising higher absent a management change. And given that management doesn't want to change . you can do the math.

Competitors:

  • Axicom (NASDAQ:ACXM)
  • ChoicePoint (NYSE:CPS)
  • Equifax (NYSE:EFX)

Customers:

  • First Data (NYSE:FDC)
  • Google (NASDAQ:GOOG)
  • Yahoo! (NASDAQ:YHOO)

Chat with investors interested in First Data, anInside Valuepick, when you take a free trial to the newsletter and check out its discussion board.

Fool contributorRich Smithdoes not own shares of any company named above.