Internet banking and billpay specialist S1
Well, maybe a clue or two
Perhaps that's overstating the case, but for a point. S1 is just coming out of a series of significant restructurings, as it realigns its business in a quest for profitability. As such, the firm's undergone changes in management, sold off divisions -- including, most recently, its risk and compliance business -- and generally made discerning the import of its financial statements a real bear.
So when I tell you that quarterly sales increased 27% year over year to $50.2 million, or that sales for the year grew 7% to $192.3 million, or that the firm reversed its Q4 2005 profit to report a $12.9 million profit in Q4 2006, or that the opposite was true for the year, with the firm's 2005 loss yielding to a $17.9 million profit in 2006 -- I'm honestly not certain what all of that means. It's going to take a few quarters to see how the new and improved S1 is doing, whether the restructurings have created a lean, mean, profit-making machine, or just blurred the image of a company that has lost money for its shareholders in eight out of the last 10 years.
Perhaps, then, we should take a clue from the people who know the company best, and have the most informed view of its current operations and future prospects: management. One thing that is crystal clear in S1's fourth-quarter report, is that the firm spent a good $55.8 million buying back its own stock, and reduced its share count by nearly 15% in the process. Ordinarily, you'd think that a good sign. But is it?
Check the price tag
I think it is -- not necessarily because I trust management's judgment, but because to me, the price looks nice. Currently, S1 sells for barely 1.7 times the trailing sales of its two remaining businesses, "Enterprise" and "Postilion" ($192.3 million, for those keeping score). Post-restructuring, CEO Johann Dreyer promises "continued revenue growth" from this point, as well as "significant year-over-year growth in income from continuing operations." Based on those statements, I think it's relatively safe to value this company with multiples to sales. To wit, here are a few relevant sales multiples we've seen bandied about in the public markets of late:
- Late last year, Intuit
(NASDAQ:INTU)paid more than five times sales to acquire Digital Insight.
- When CheckFree
(NASDAQ:CKFR)agreed to buy Corillian (NASDAQ:CORI)last month, it anted up four times sales for its prize. In January, it had picked up complementary business Carreker (NASDAQ:CANI)for just 1.5 times sales.
- In October 2006, Open Solutions went private for two times sales, a price that fellow Fool Tom Taulli termed "typical for a software firm."
With companies in the online banking space fetching multiples of 1.5 to 5 times sales for their shares, it seems to me that a growing S1, and one promising "significant" growth in profitability, might well be worth more than its current $330 million market cap. Just one Fool's opinion, of course, but there you have it.
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Fool contributor Rich Smith does not own shares of any company named above.
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