eGain Corp ( EGAN Quick Quote EGAN - Free Report) is a Zacks Rank #1 (Strong Buy) that has the growth divergence that I love to see. There is an A for Growth and an F for Value and when I see that sort of difference I know right away that I am on the right path. Growth investors and value investors are inherently looking for different things so the bigger the difference in the style scores the better. Description
eGain Corporation operates as a software-as-a service provider of customer engagement solutions in the United States, the United Kingdom, India, and internationally. It provides eGain solution, a unified cloud software solution to automate, augment, and orchestrate customer engagement, including digital-first, omnichannel desktop, artificial intelligence (AI) and knowledge, and analytics and machine learning applications, as well as platform APIs and pre-built third-party connectors. The company's suite includes various applications for digital interaction, knowledge management, and AI-based process guidance. It also provides integrated analytics for contact centers and digital properties to measure, manage, and optimize resources. In addition, the company offers subscription services and customer support services; and consulting, implementation, and training services. It serves customers in various industry sectors, including the financial services, telecommunications, retail, government, healthcare, and utilities. The company was founded in 1997 and is headquartered in Sunnyvale, California.
I see a good earnings history here with 3 of the last 4 quarters coming in ahead of expectations. The only time there wasn’t a beat is when there was an earnings meet. One of the beats was very large, with a 700% positive earnings surprise. That helps the average over the four quarters to come in at 288%, which is still very high.
Following the most recent beat, I see the current quarter lifted from $0.01 to $0.06. There was also a one cent move in next quarter as well. The full year numbers saw a big jump with this fiscal year moving from $0.07 to $0.20, and next fiscal year going from $0.07 to $0.22. This is the biggest reason the stock moved to a Zacks Rank #1 (Strong Buy) as the Rank is impacted the most from changes in the annual estimates.
The valuation is a little stiff here, but we see that from a lot of software names. I see a 61x trailing earnings multiple and an 86x forward earnings multiple. The topline grew at a 13% clip last quarter and given the pandemic any growth is good growth. The 15x price to book is a little high, but software names are historically asset slim businesses so the book value is going to be rather low. The price to sales multiple of 7x is also somewhat high, but again, this is due to the software space.
I see margins moving much higher in the last two quarters, going from 7.8% to 10.3% on an operating basis and that is something that will push all the multiples much higher. If there are continued improvements in margins then the multiple will continue to move higher, as will the stock.
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