Datawatch (DWCH): New Team Is Off And Running
from The 100% Letter (formerly Small Cap Investor PRO), recommended around $16 on November 21, 2012.
We’re up 50% on our position in Datawatch. But the stock is not particularly expensive yet despite the rapid rise. When I first recommended the company in November, 2012, the stock was trading at around 4.8-times trailing sales. Today, the price-to-sales ratio stands at 5.4, a little higher but by no means extreme.
And when you consider that competitors such as Tableau (DATA) trade at 24.2-times trailing sales, DWCH looks downright cheap. A similar valuation would put shares of DWCH at $100.00, more than 330% above today’s level. I’m not saying we’ll get there this year, but I do believe DWCH has that much potential.
This is what the chart looks like, along with the timing of my recommendations.
Powering this climb is the fact that the company’s big data solutions have generated multiple quarters of growth. And the recently announced Panopticon acquisition should be a transformative event.
Revenues in the just reported quarter hit a record high of $7.83 million, up 9% from the comparable quarter in 2012. This was a good quarter, but the excitement is really about the future. And that gets us to Panopticon and the future of data analysis.
Panopticon’s specialty is visualization software for data, including real-time data. Datawatch’s specialty is pulling and aggregating data from just about any source, including static documents like PDF filings and excel documents.
Together, these companies will have the capacity to grab immense amounts of data and deliver it to clients in easy to digest, real-time, streaming visual formats - like heat maps, pie-charts and graphs.
The value of this offering is immense. Almost every industry is moving in this direction. And this team operates in industries with a high willingness to pay, such as financial services, healthcare and supply chain. For an example of how this technology works, check out this video from Datawatch; it illustrates the power of the tech better than words alone can.
The combined business should be a force to be reckoned with and will be a true competitor to Tableau, which lacks the real-time capability. At this stage there is still a lot of speculation in the stock as a result of the Panopticon acquisition (which isn’t included in the last quarter’s results as it won’t close until this quarter), but I feel it’s justified.
With a market cap of just $148 million and annual sales below $30 million, DWCH is still a small company. We’re into this thing very early and it’s likely to have some volatile moments. But this is true “emerging technology” investing where the potential payoff is massive.
DWCH has its foot in the door of major clients, including SAP, Thomson Reuters, Credit Suisse and Citigroup. The market demand for data, and especially real-time graphic data, is off the charts. The company has a lot of work to do to capitalize on the opportunity, but they appear to be stepping up to the challenge.
Enjoy the ride and hold your shares. Datawatch is a hold.
Tyler Laundon, The 100% Letter, 100percentletter.wyattresearch.com, 866-447-8625, August 7, 2013