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I own IRI - has an excellent balance sheet.

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geffa9

13,139 Posts.

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30/04/24

20:47

Post #: 73594023
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Originally posted by saintex ↑

Software companies

It remains tough to find cheap software companies in the ASX.
Instead of looking for growing companies at a reasonable valuation (I can't find any in the ASX), another approach may be to look for companies which are stabilising their business, while adjusting their cost basis and then show a significant cash flow/free cash flow.

2 companies have such a profile among microcaps : Integrated Reseach (IRI) and Knosys (KNO).
So far, IRI has published its results for 6 months (ending in Dec 23), while Knosys has published its results for 9 months (ending in March 24).
During these respective periods, IRI had a decrease of 5 % for its recurring revenues (but flat if we take 2 of their 3 main products) and a decrease of 21 % for its expenses, while KNO had steady annualised recurring revenues and a 25 % decrease of its costs.
In both cases, such a combination had a large positive effect on their cash flow from operation and a large free cash flow yield (both companies have also a large net cash position).

So, according to my calculations, IRI and KNO have a free cash flow yield of respectively 13.3 % and around 24 %.
This looks interesting for software companies, if they can confirm later on that they have been able to stabilise their business.
Anyway, important also to note that both stocks have a rather high risk profile :
- Knosys is very illiquid,
- while IRI's main product (Collaborate) representing 44 % of its sales, may be in a structural decline.

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I own IRI - has an excellent balance sheet.
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