The market's reaction to collaborative commerce solutions provider Click Commerce's (NASDAQ:CKCM) second-quarter results was, in a word, baffling. Revenue increased 115% over the comparable quarter last year. Earnings increased 173%. Yet the stock cratered -- down 25% at midday.
Investors were obviously expecting much stronger numbers. One number that may have concerned investors was accounts receivable (A/R), which jumped 29% on a sequential basis and 147.8% on a year-over-year basis to $15.8 million. Those who listened to the conference call were comforted on learning that the increase was mostly related to the timing of the Xelus acquisition, reaching an artificially high 109 days outstanding before collection. It is expected that this will drop to 92 days (a normal level) on the way to reaching a mid-80s target level.
All that money tied up in A/R certainly didn't help cash generation. Cash flow from operations was a negative $1.1 million this quarter, which, to be fair, also included the costs of the company's recent acquisitions of Xelus, Optum, and ChannelWave.
Investors interested in Click Commerce would do well to focus on its RFID (radio frequency identification) opportunities. Giants such as Wal-Mart (NYSE:WMT) and Motley Fool Inside Value recommendation Home Depot (NYSE:HD) are requiring their suppliers to acquire RFID technology so that inventories can be better managed -- and to save money. The Xelus acquisition helped Click Commerce offer a much more robust line of RFID products, and it also provides a logical compliment to the company's current product bin, which includes supply chain management and collaborative commerce software packages.
Click Commerce does not provide forward sales or earnings guidance. The one analyst following the company expects earnings of $1.39 a share this year -- pricing this fast-growing enterprise at a less-than-boom-company price of 14.3 times forward earnings.
Over the past 52 weeks, the stock has risen by more than 350%. Some investors may have used today's news to sell and capture their oversized gains. But given the growth opportunity represented by its RFID products, a string of eight consecutive quarters of profitability, and a blue chip list of clients that includes IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), and Cisco (NYSE:CSCO), today's sell-off is a move that looks rather unfounded.
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Fool contributor W.D. Crotty owns shares in Home Depot. Click here to see the Motley Fool's ironclad disclosure policy.
