Pricey but Intriguing

 | Jul 03, 2014 | 8:30 AM EDT  | Comments
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Toward the end of February, shares of Concur Technologies (CNQR) started a three-month slide that came to a stop in early May. From peak to trough, the shares fell 41%. Recently, though, the stock rose 25%. Is this a dead-cat bounce or an opportunity to get back into a highflier?

Concur Technologies, a travel-and-entertainment (T&E) service provider, was left for dead in early May. The shares hit rock bottom shortly after the company reported fiscal second-quarter results in April.

That report showed earnings of $0.15 per share, $0.06 better than the consensus Street estimate. Revenue rose 31.1% to $167 million. Despite the strong quarter, some investors were disappointed with the company's guidance. On the conference call, management told investors to expect $688 million in revenue for fiscal 2014 -- slightly below the $689.85 million estimate -- which would mean a climb of 26%. Some had been holding out hope for a 27% growth rate. Still, momentum investors didn't quibble over a point, and the stock bounced higher.

In the last four years, Concur has managed to increase its growth rate almost every year. In fiscal 2011, its top line grew 19.3%. Now, investors expect 26% or 27%. Preliminary estimates for next year seem low at just 23.8%, especially since fiscal 2016 estimates are higher than 23.8%.

For the quarter ending June, investors are expecting at least $175.2 million in revenue, up 26% year over year. Gross margin should be 68.3%.

Concur has been taking advantage of the move to cloud computing by offering clients a complete travel-and-entertainment solution. By allowing employees to log in anywhere in the world and complete their expense worksheets, companies save money and time. Concur's solutions also help management better control travel expenses by enforcing company policies. Busy executives can book travel on a smartphone directly from the company's approved supplier.

Expenses are managed on one easy platform, and the folks at headquarters can generate a wide range of analytics to determine how their travel budgets are being spent.  

Of the 17 publishing analysts that follow Concur, nine have a Strong Buy or Buy rating on the stock. Seven rate the stock Hold. Only one analyst rates the stock a Sell. I think the wide dispersion of opinions means the investment community is split on how to value the stock. The stock is priced at 150x the average 2014 earnings estimate of $0.62 per share, so it's hard to get behind these shares.

Concur has been investing heavily in back-end systems and programming, and this has held down earnings per share, so I wouldn't worry too much about the price-to-earnings multiple. Earnings should expand as the company reduces capital expenditures.

With so few companies out there that can grow revenue in the mid-20s, I think it's worth a shot to buy some Concur shares. Given its very strong revenue growth, the company should be able to grow into its valuation over time.

I am also intrigued by the possibility that a larger software maker could acquire Concur. Just focusing on T&E and invoicing doesn't seem like a large opportunity. I think the company's products could be a feature of someone else's product.

I could see Oracle (ORCL) or Priceline (PCLN) bidding for the company: Concur could be easily integrated into Oracle's financial management's products, and Priceline might be interested in Concur as well. By acquiring this company, Priceline would gain an important foothold in the corporate travel business. Priceline could offer its booking services to Concur's customers. 

If you're not afraid of the steep valuation, Concur seems to offer a few ways to win.

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