Formula Systems Story Overview

FORTY -- USA Stock  

USD 38.84  1.04  2.75%

Macroaxis News
  
By David Taylor

Formula Systems is a global IT company.  The company provides services and software solutions for IT professional services.  The company’s stock is trading at $38.76 and their market capitalization is $570 million.  

Along with many companies during 2014, revenue declined a great deal.  The economy was faltering in the United States and around the world.  However, gross income has increased since then and is on par to regain levels seen before the large slowdown

Business Services
Fama & French Classification
An IT company that is priced significantly below industry average and yet earnings are strong.

The industry and sector averages for P/E and other metrics is into the 30s, but this stock is only at 7.91.  There are a few metrics that this company falls short in.  And, yet, the earnings are firm and growing.  Smaller companies often get left behind when there is a big move, such as what we saw over the past several 




Formula Systems is a global IT company.  The company provides services and software solutions for IT professional services.  The company’s stock is trading at $38.76 and their market capitalization is $570 million.  

Along with many companies during 2014, revenue declined a great deal.  The economy was faltering in the United States and around the world.  However, gross income has increased since then and is on par to regain levels seen before the large slowdown:

2012:  $179,928

2013:  $192,801

2014:  $106,334

2015:  $148,806

The economy is well beyond just mending.  In fact, there is a good amount of growth in the economy to push the Federal Reserve to lift interest rates to where the rate is going to be normalized.  The Fed is very likely to continue to move rates increasingly over the next several years.  FORTY has followed the fortunes of the economy.  When the economy faltered, gross income slipped.  Now that the economy is expanding so is gross income.  With the economy poised to expand substantially, gross income should follow.  

At the same time, earnings have largely stayed the same over this period:

2012:  $1.77

2013:  $5.88

2014:  $5.80

2015:  $5.24

Looking above, you can see the large decline in income from 2013 - 2014.  Yet, earnings barely moved.  However, on the flip side, income rose again and earnings went down.  There may very well have been outlying factors during they period that are not readily available.  Nonetheless, with earnings at the price they are the stock is trading at $38.76 per share.  This is well below the 10-times threshold I am usually looking for.  This might be one of the biggest bargains to future earnings I have come across in recent memory.  

This single factor alone gives me the confidence to put this stock into my own portfolio.  By buying into this stock at such discounted level versus earnings, and assuming that there will be continued earnings such as this the stock presents a short-term potentially big gain.  The entire market, on average is trading at 25 times earnings.  This stock is only in the single digits.  Even if the company’s stock moved to merely average, given an earning of $5.00 per share, that would put the stock’s price at $75.00 per share, just about double its price right now.  

There is more, though, that I have found with this company.  The ratio for the price-to-earnings is 7.61.  However, the industry and sector average are 31.46 and 27.93, respectively.  FORTY is significantly below its peer group.  In some cases, it is 1/2 the average and in other cases, it is 1/3.  The pricing of this stock puts it at such a significant opportunity.  

The price/cash flow is 9.84.  But, the industry is 20.49.  Price to sales, FORTY is 0.58 whereas its peers are 1.15.  These kinds of opportunities are rare.  But, I have found many stocks that are trading below the industry averages.  However, this particular company is trading significantly below its peer group.  These smaller companies often are left behind.  But, in this particular case, I believe that this company will either be bought out or, at the very least, its stock will appreciate to the levels that are at least average.  As was pointed out that puts this company at $75.00 per share, nearly doubling the stock price.  At the same time, the economy alone will push this stock higher.  

There are a multitude of reasons why this stock is priced too low but will turn upward.  Getting into this stock and holding for some time in your portfolio makes a lot of sense. 

Story Momentum

This headline from Macroaxis disseminated on 02/03/2017 added to the next day closing price rise.The overall trading delta to closing price of the next trading day was 0.98% . The overall trading delta when the story was published to current closing price is 3.57% .

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Earnings Per Share

Earnings Per Share Comparative Analysis
Formula Systems is currently under evaluation in earnings per share category among related companies. Earnings per Share (EPS) denotes the portion of a company's earnings that is allocated to each share of common stock. To calculate Earnings per Share investors will need to take a company's net income, subtract any dividends for preferred stock, and divide it by the number of average outstanding shares. EPS is usually presented in two different ways: basic and diluted. Fully diluted Earnings per Share takes into account effects of warrants, options, and convertible securities and is generally viewed by analysts as a more accurate measure.
Additionally see Formula Systems Hype Analysis, Formula Systems Correlation and Formula Systems Performance. Please also try Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.