A Technology Gem Exploding on All Fronts
##Symbol##MANH
➜ MANH generates $1.42 in revenue for every $1 in expense, which is quite high and above the sector average of $1.07.
Manhattan Associates (MANH) is a remarkable technology company with little "sex appeal" but lots of investment appeal. The firm makes hardware and software aimed at easing supply chain management while making it more efficient to get materials and goods where they're needed. It has seen revenue, operating margins, net income and levered free cash flow hit all-time highs, as the stock has doubled in the last year and is actually up in the last three-months. The firm competes with Oracle (ORCL), and on the fringes with Microsoft (MSFT) and even IBM.
MANH has the highest possible fundamental rating and in fact, if we scan all of information technology and look for firms with five stars and bullish momentum but with market caps below $5 billion, there are only seven such firms. MANH is ranked #2 out of those seven. Here are the scan results.
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MANH crushed its last earnings release, beating on every line item and guiding higher. The company saw growth in every core segment with services division leading the way up almost 15% . Hardware sales rose just under 10% as did Software Licensing. As is the case with most businesses that have this mix, licensing brings in the highest margins, while hardware tends to run at low margins (Source: The Motley Fool).
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MANH's revenue (TTM) has risen for twenty consecutive quarters and saw a 17% year-over-year rise while two-year revenue growth is over 35%. Better yet, on the earnings call in late July, the company raised guidance on revenue and EPS. The chink in the armour for this firm is international expansion, in particular in Europe, where the firm simply has not gained a legitimate position of strength. Any kind of swing toward success outside of North America could mean serious growth for the firm, well higher than the 12-13% it guided in the last earnings report.
And, if you're worried about valuation, check out this price to sales time series chart.
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The company is certainly not trading at an absurd market premium.
MANH has elevated stock price movement potential over the next 30-days (movement up or down). Although several proprietary factors affect the risk rating, in particular for MANH some of the items driving the rating are:
↳ High 30-day implied volatility relative to the last year.
The stock price range reflected by the option market over the next 30-days is ($50.30, $64.40).
Technicals | Support: 56.96 | Resistance: 67.22
Golden Cross Alert: The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.
MANH has a two bull (low rated) technical rating because it's trading below both its 10-day (short-term) and its 50-day (medium-term) moving averages. We do note that the stock is trading above the long-term 200-day moving average.
Let's look at the core elements that drive the company's fundamental rating.
Fundamentals Rating Summary
MANH is up +4.1% over the last three months and up +12.0% over the last six months. The stock price is up +98.4% over the last year. I do note the recent small sell-off (what hasn't?).
Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.
METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Revenue (TTM US$ Millions) 529451390
Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (in this case we're looking at a remarkable twenty consecutive quarters). The company has realized 17% growth in revenue year-over-year and more than twice that over the last two-years. What do all these numbers mean?
MANH's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.
Let's look at Revenue (TTM US$ Millions) in the chart below.
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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Operating Revenues/Operating Expense 1.421.361.34RISING
Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter MANH showed a ratio of 1.42. When we look at the chart below, we'll note that MANH is now operating at all-time high margins. That means its mix of hardware to licensing is improving and that will push all other earnings measures substantially higher.
What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.36. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).
MANH's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).
Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line. Note that the green bar represents the al-time high in operating margin.
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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Net Income (TTM US$ Millions) 927657
Net Income (after tax profit) over the trailing twelve months (TTM) for MANH is rising and "trending". Earnings rolled up into trailing-twelve-month numbers have risen for eleven consecutive quarters, each time to a new all-time high. The company has seen net income (TTM) rise 21% year-over-year and 61% over the last two-years.
In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago) and the green bar which represents the all-time high. We can also see that the quarterly number was an all-time high.
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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Levered Free Cash Flow (TTM US$ Millions) 1016959RISING
Levered Free Cash Flow (FCF) (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. When revenue, operating margins and net income are at all-time highs, you better believe FCF will be too. FCF is up just under 50% in the last year for MANH, and up 71% over the last two-years.
For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time.
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Summary
MANH is a technology company that, as of right now, has just six other peers that are performing as well in terms of fundamental strength. The stock has corrected, but gently, while the rest of the market has vomited down. While revenue is breaking all-time highs essentially every quarter and guidance continues to rise, the company is actually increasing margins which as led to all-time high sin net income and FCF. if the company can find a way to make a dent in the established EuroZone supply chain business it practically has unbounded growth potential. Even without the international exposure, MANH continues to defy the odds on all fronts. If you're look for a mid-cap technology company to add to your watchlist, MANH may be the one.
