Description

ONDI is a quantitative bargain that looks to be in a growing and profitable market niche. The company provides software and services to protect and recover data. The numbers are straigtforward. For just over $8 per share you get $3 per share in cash and no debt. The company is expected to have cash earnings of about 65 cents this year (reported earnings of 60 cents, less 5 cents earnings on cash, plus 10 cents in goodwill amorization. Next year close to 80 cents on the same basis. Netting out the cash, you are paying 8.5 times this year's growing earnings. Throw a 12 multiple on next year's earnings and add back the cash and we're talking a 50% plus gain in a year.

Revenue for the first quarter was up 40% year over year. Two new but small areas grew at over a 100% pace, these are Remote Data Recovery and Enterprise Information Management (don't ask me). Anyway, I'm no expert in this area and I'm sure it is competitive, but these guys are supposedly one of the leaders in data recovery and have TTM sales of only 45 million. Obviously room for growth (okay, and room to get crushed like a grape). Business and trends seem to be going extremely well though within their chosen niches and the company has remained quite profitable over the last 4 years.

I play two types of situations. The situations I know backwards and forwards--these I feel comfortable loading up on. This case falls in the second category-- quantitative bargains heading in the right direction in what appear to be attractive businesses. These types I try to do my homework, but only feel comfortable putting into a portfolio of 5 or 8 similar investments.

Catalyst

Two catalysts. Earnings come through and this stock gets a more reasonable multiple. Second, the company had struck a deal to sell itself a couple of years ago in the low 20's. The acquiror's stock collapsed and the deal was called off. But maybe, if the business momentum continues, management may view an exit to a larger company as an attractive alternative again.