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2 Small Caps with Recurring Revenue and Strong Balance Sheets
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In times of macro uncertainty, businesses with recurring revenue and strong balance sheets are often a good place to look for possible outperformance.
Daily Journal Corporation (DJCO - Free Report) and IDT Corporation (IDT - Free Report) meet these criteria. Both small caps are diversifying away from legacy businesses through higher growth recurring revenue segments while being buffered by very strong balance sheets.
In the case of Daily Journal Corporation (DJCO - Free Report) , nearly 80% of its consolidated revenue is now derived from its Journal Technologies case management software business which is utilzed by courts, prosecutors, public defenders, probation departments, and other justice agencies to facilitate e-filing and online citation payments. The less discretionary nature of government spending also helps the safety narrative.
The legacy business consists of advertising and circulation revenue from 10 newspaper publications serving the legal community. This business had been in consistent decline but has stabilized recently.
In Q1 the Journal Technologies revenue grew 32.2% YOY to $18.2 m with sales penetration across 37 states. The balance sheet presently has $430 m in marketable, liquid investments and minimal debt. Based on the recent 13F filing, about 47% is invested in Wells Fargo (WFC) and 41% in Bank of America (BAC).
Investors need to be aware that the DJCO stock price has shown correlation with the stock performance of these banks as the graph below depicts.
Image Source: Zacks Investment Research
The legacy business of IDT Corporation (IDT - Free Report) , in contrast, still remains fairly substantial at 70% of consolidated revenue although progressively shrinking. But the POS (point of sale), Fintech, and net2phone businesses are growing recurring revenue double-digits at a higher margin.
Image Source: Zacks Investment Research
Additionally, IDC Corporation (IDT - Free Report) has $246 m in cash and market securities on the balance sheet with $0 debt.
The bet is that both companies will re-rate to higher SAAS multiples, especially IDT as this portion of the business becomes more prominent within consolidated results. A sum of the parts analysis of these businesses suggests room for multiple expansion.
And lastly, both stocks have betas below 1 suggesting less market volatility and adding some downside protection in addition to the recurring revenue and strong balance sheets.
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2 Small Caps with Recurring Revenue and Strong Balance Sheets
In times of macro uncertainty, businesses with recurring revenue and strong balance sheets are often a good place to look for possible outperformance.
Daily Journal Corporation (DJCO - Free Report) and IDT Corporation (IDT - Free Report) meet these criteria. Both small caps are diversifying away from legacy businesses through higher growth recurring revenue segments while being buffered by very strong balance sheets.
In the case of Daily Journal Corporation (DJCO - Free Report) , nearly 80% of its consolidated revenue is now derived from its Journal Technologies case management software business which is utilzed by courts, prosecutors, public defenders, probation departments, and other justice agencies to facilitate e-filing and online citation payments. The less discretionary nature of government spending also helps the safety narrative.
The legacy business consists of advertising and circulation revenue from 10 newspaper publications serving the legal community. This business had been in consistent decline but has stabilized recently.
In Q1 the Journal Technologies revenue grew 32.2% YOY to $18.2 m with sales penetration across 37 states.
The balance sheet presently has $430 m in marketable, liquid investments and minimal debt. Based on the recent 13F filing, about 47% is invested in Wells Fargo (WFC) and 41% in Bank of America (BAC).
Investors need to be aware that the DJCO stock price has shown correlation with the stock performance of these banks as the graph below depicts.
Image Source: Zacks Investment Research
The legacy business of IDT Corporation (IDT - Free Report) , in contrast, still remains fairly substantial at 70% of consolidated revenue although progressively shrinking. But the POS (point of sale), Fintech, and net2phone businesses are growing recurring revenue double-digits at a higher margin.
Image Source: Zacks Investment Research
Additionally, IDC Corporation (IDT - Free Report) has $246 m in cash and market securities on the balance sheet with $0 debt.
The bet is that both companies will re-rate to higher SAAS multiples, especially IDT as this portion of the business becomes more prominent within consolidated results. A sum of the parts analysis of these businesses suggests room for multiple expansion.
And lastly, both stocks have betas below 1 suggesting less market volatility and adding some downside protection in addition to the recurring revenue and strong balance sheets.