COMMENTARY -- IntraNet Solutions (Nasdaq: INRS) may be relatively unknown to the average technology stock watcher, but its shares have held up well despite some ugly times for Nasdaq.
The company (profile), which makes content management systems and document viewing applications, has remained relatively unknown even as its shares trade near 52-week highs. Part of IntraNet Solutions' stock success is simply supply and demand -- institutions and insiders have 70 percent of the company's shares locked up.
The other key factor behind IntraNet Solutions' success is performance. The company has six consecutive quarters of operating profit, strong sales growth and a lot of potential as business-to-business and business-to-employee sites balloon. For the second quarter ending Sept. 30, IntraNet Solutions reported pro forma earnings of 15 cents a share on sales of $15.6 million. The results easily topped estimates, and sales surged 242 percent over a year ago and 65 percent sequentially.
So why has IntraNet Solutions toiled in relative obscurity? The company hit the market in 1996 after a reverse merger with MacGregor Sports & Fitness, which basically was a shell company. Without a big IPO, IntraNet Solutions didn't immediately attract analyst coverage -- analysts often follow the lead of the investment bankers. Last year, the company completed a secondary offering, and analysts with underwriting ties began coverage.
"The secondary effectively was our IPO," said CEO Robert Olsen, who owns about 22 percent of the company. Olsen said the company is starting to make an effort to get the word out to Wall Street and the tech world.
The payoff could be huge. IntraNet Solutions shares have held up well, but the company's market capitalization is light years behind competitors such as Interwoven (Nasdaq: IWOV), Documentum (Nasdaq: DCTM) and Vignette (Nasdaq: VIGN). IntraNet Solutions counts Compaq (NYSE: CPQ), Yahoo! (Nasdaq: YHOO), Shell, Agilent (NYSE: A) and Qwest (NYSE: Q) as key customers.
Olsen's bet is that investors will start noticing. The company manages "unstructured information," which basically means any content that you can't serve from a database. Many B2B transactions require a bunch of forms to comply with regulations and other requirements -- it's complicated stuff. IntraNet Solutions can boil that content down to HTML, XML and a host of formats.
Jeff Van Rhee, an analyst with PMG Capital, said IntraNet Solutions has carved out a good niche for itself. "I like the story a lot," he said. Van Rhee added that a high percentage of licensing growth (80 percent) indicates the company's software operates "out of the box." PMG Capital doesn't have underwriting ties to IntraNet Solutions.
Although IntraNet Solutions has a good niche, it lacks the installed base of Documentum's and Interwoven's big-name partnerships. Those weaknesses keep IntraNet out of the market for customized software. "IntraNet's partnerships are lacking, but if the company can announce more big partnerships it could be a catalyst," said Van Rhee.
IntraNet Solutions is delivering big wireless partnerships. In recent weeks, the company announced partnerships with an Alcatel unit and the Symbian alliance, which will give it access to Nokia (NYSE: NOK), Ericsson (Nasdaq: ERICY), Motorola (NYSE: MOT) and Sony (NYSE: SNE).
Of the recently announced deals, Olsen said each of them carries "revenue components already built in" with potential sales upside.
The week ahead
Look for a light week on Wall Street as everyone gets ready to hit the exits for Thanksgiving. Given Thanksgiving is Thursday and the markets close early Friday, investors are looking at a three-day week.
Here are the abbreviated highlights:
Nov. 20: Agilent (NYSE: A) reports its fourth quarter earnings. The former HP unit surprised Wall Street last quarter and may be planning an encore. Analysts are expecting a profit of 51 cents a share.
Nov. 21: Novell reports its fourth quarter earnings after the closing bell. Following a few disappointing quarters, Novell is trying to regain some credibility on Wall Street. First Call consensus: Break even.
Nov. 21: Intuit (Nasdaq: INTU) reports its first quarter earnings. Intuit is expected to post a loss of 16 cents a share, but you shouldn't worry. The company makes all its money around tax season. TDAIN