Please read carefully our disclaimers at the end of this newsletter. Market Stance: BULLISH (since July 28, 2006)Contents
Year-To-Date Performance
* An average of managed accounts, net after commissions and fees. Individual account results may vary. See also www.deencapital.com/perform.htm. For information on managed accounts, see www.deencapital.com/mgdaccts.htm. Bought Interactive Intelligence Inc (ININ)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Friday, October 6, 2006, I bought ININ, first for client accounts, then for my personal accounts. Interactive Intelligence, Inc. develops communications and interaction management software. The Company's software enables customers to automate critical business processes by integrating their communications systems with their information technology. Interactive Intelligence's flagship product is the Enterprise Interaction Center. Here's why I bought this stock: + News: If I can believe the data I'm seeing, this is a truly stunning earnings surprise. Yesterday, after the close, the company announced preliminary financial results for the quarter ended Sep 30. The official announcement will be on Oct 23. Earnings are expected to come in between 34c and 36c per diluted share (vs 1c last year and First Call 3c). Revenue will be in the range of $21.0 million to $22.0 million, a gain of at least 38% year over year. First Call pegged the analyst consensus at $18.85 million. + A "true surprise"*: From mid-July until today, the stock had been trending lower. Yesterday's close was near a 3-month low. But today, as I write this, a little more than an hour before the close, the stock is soaring, up $3.61, or 31%, on more than 9x average daily volume. * "True surprise" is my term to describe a company news item that ignites heavy buying and that was not preceded by a short-term run-up in the stock price (i.e. not preceded by rumor). + Near-Breakout: If one could remove the four highest closes in August from the chart, then today would be a breakout from a 3-month trading range. I call this a "near breakout". With such a huge buying stampede going on, I expect a true breakout to follow fairly soon. + Today, the stock is on track to meet the stringent technical buy criteria outlined in my Research Update of June 26, 2004: http://www.deencapital.com/newslett/2004/040626.129.html#3 . + Excellent and accelerating recent sales growth. Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +13%, +22%, +23%, and, most recently, for the quarter ended Jun 30, +23% to $19.3 million. Now, as cited above, we're looking at +38% or better for the quarter ended Sep 30. + Excellent recent earnings-per-share growth. Here are the quarterly EPS figures for the last eight quarters: Sep 05 vs Sep 04: 1c vs 1c Dec 05 vs Dec 04: 10c vs 3c Mar 06 vs Mar 05: 9c vs 1c Jun 06 vs Jun 05: 9c vs 2c + Valuation: At 43 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 30%, the stock price is within reason. If the huge earnings surprise cited above is any indication of things to come, then next year's earnings estimate could be substantially low, which could make the valuation downright attractive. + History of earnings surprises: This company has reported earnings at least 4c above estimates in three of the past four quarters, including the preliminary earnings surprise cited above, which is at least 31c above. + The company's industry group ("Computer Sftwr - Enterprise") is ranked #31 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally rising over recent weeks and months. + The stock's 200-day moving average is rising, indicating a long-term uptrend. I chose to buy the stock in spite of the following negative factor: - Falling earnings-per-share estimates: According to recent data from First Call, the consensus earnings estimate for 2006 is 22c, revised downward from 24c 90 days ago (but up from 2005 actual earnings of 13c); and the consensus estimate for 2007 is 36c, revised downward from 39c 90 days ago. -KD, October 6, 2006
* Net buy prices shown are the total net purchase cost after commissions for all managed accounts divided by the total number of shares. ** Current prices are at least 20 minutes old. Welcome to The Deen's ListTM, an e-mail stock newsletter from Deen Capital Management, Inc. My intention is to inform you as quickly as is practical regarding my stock market moves. When I buy or sell a stock, first I take care of client accounts, then I buy/sell for my personal account(s), and then, third, I send out this newsletter. Your feedback is welcome. Send e-mail to deenslist@deencapital.com. To subscribe or unsubscribe, include the word "subscribe" or "unsubscribe" in the Subject line. This newsletter is free to managed account clients. For a limited time, it is also free to all interested parties. Your personal information, including your e-mail address, will be held in strict confidence by Deen Capital Management, Inc. We will not share it with or sell it to others. All stocks discussed in The Deen's ListTM involve a high degree of risk. It should not be assumed that any stock discussed in The Deen's ListTM or purchased by Deen Capital Management, Inc. will be profitable. Past performance is not necessarily indicative of future results. The information contained herein has been compiled from sources deemed to be reliable; however, we are not responsible for its accuracy or completeness. Ken Deen Copyright © 2006 Deen Capital Management, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||