During its successful IPO in late June, PROS Holdings (NYSE:PRO) shares hit $12.85 apiece. But like many other new offerings, it's faced volatile trading since, and its stock price has now sunk to $10.41. If this sounds like a buying opportunity to you, keep reading.
PROS offers a suite of software products that helps companies improve their pricing strategies. Its complex, data-crunching product works with systems from SAP (NYSE:SAP), Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), and more.
PROS rang up revenue of $14.4 million, up 34% over the past year. License and implementation revenue spiked 49% to $9.9 million. This crucial revenue tends to lead to ongoing service and maintenance fees -- especially in PROS' case, given the company's 95% customer renewal rate.
There were no details on new customer counts. Because its typical contract totals roughly $1.8 million, the figures can be lumpy, so PROS only provides annual numbers. But on the conference call, management indicated that roughly two-thirds of its quarterly revenue came from new business.
Over the past year, the company's net income fell from $1.5 million, or $0.06 per share, to more than $1.2 million, or $0.07 per share. This isn't the best comparison, though, because of the company's stock compensation charges and one-time expenses for the redemption of preferred stock.
In fact, PROS saw a solid improvement in gross margin, from last year's 64.5% to 70% this year. Increased efficiencies in the professional services segment have significantly helped this metric.
As a result, PROS posted operating income of $2.4 million in Q2, a 65% increase year over year. Encouragingly, management doesn't expect margins to fall for the rest of the year.
Despite its lower stock price, PROS still trades at about five times trailing-12-month revenue. While the company is growing at 30% or more per year and has strong operating income, its valuation is still far from cheap; the typical enterprise software company trades at about twice its revenue. Fools would probably be wise to hold off on PROS for now.
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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 4,156 out of more than 60,000 total participants in CAPS. The Fool's disclosure policy enjoys crunchy numbers.
