Over the years, the main focus for enterprise-software companies has been to find ways to automate processes and find cost savings. While this is fine, these firms have been missing out on perhaps a bigger opportunity: How can software improve revenues?
That's the focus at PROS. The company develops software that helps with pricing and revenue optimization. The technology uses advanced statistical approaches that leverage real-time and historical data from systems such as Oracle
Pricing optimization is often a haphazard process, and money can often be left on the table. A recent study from Gartner points out that a 1% improvement in pricing can produce an 11% increase in profitability. In comparison, a 1% improvement in fixed costs serves up only a 3% increase. And optimization has turned out to be a nice growth business for PROS. It's shown profits for the past eight years. In 2006, revenues increased 31% to $46 million.
PROS does face competition from rivals such as Revenue Technologies, Vendavo, Zilliant, SAP, Oracle, and JDA Software
However, PROS' valuation stands at six times trailing revenues. Even though the company is growing nicely, this is still not cheap compared with other enterprise software companies. So while the company has a big market opportunity and a strong product offering, Foolish investors should probably wait to try to get a better value on this one.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,831 out of more than 31,000 rated investors in Motley Fool CAPS.