FactSet (NYSE:FDS) sells software and data that helps financial professionals research financial markets and analyze individual securities. Its products are proving indispensable to existing customers, and the firm's recent second quarter results indicated that it continues to have no problem signing up new ones. The only thing to not like about the investment story is the valuation.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Second Quarter Recap
Revenues increased 12.2% to $199.4 million. United States revenue also advanced 12.2% and reached $136.4 million, or roughly 68% of the total top line. International accounted for the remaining 32% and also improved 12.2%. The total client count increased to 2,324 with 81% from the buy side and related firms including Federated Investors (NYSE:FII) and Legg Mason (NYSE:LM). The remaining 19% stemmed from the sell side and firms such as Jefferies (NYSE:JEF) and Citigroup (NYSE:C). FactSet boasted a client retention rate of 95%.

Total expenses rose 10.6% to lag sales growth and help push operating income up 16.1% to $67.6 million. Higher income tax expenses resulted in net income growth of only 3.3%. Earnings came in at $46.7 million, or $1.02 per diluted share. FactSet ended the quarter with no long-term debt and more than $200 million in cash, or approximately $4.35 per diluted share.

Outlook and Valuation
FactSet projects third quarter revenue growth between 9 and 11%, and earnings in a range of $1.14 and $1.16 for year-over-year growth between 12 and 14%. Analysts currently project nearly 12% full year sales growth, total sales of $811 million and earnings per share of $4.12.

Given the current projections for the full year, FactSet trades at a forward P/E of 21.

The Bottom Line
FactSet reported another impressive quarter of growth and has grown in the double digits for more than a decade now. The only problem with investing in the stock currently is its lofty valuation. With a hiccup in the aggressive earnings growth the market is expecting, the stock could get killed. As long as any weakness isn't attributed to a fundamental deterioration in FactSet's operations, this would represent a good entry point.

From an investment standpoint, at the current stock price level, there appears to be a significant amount of downside risk. FactSet has proven that clients find its software and financial market data just as indispensable as their Bloomberg terminals or similar product offerings from Thomson Reuters (NYSE:TRI), but this strong competitive position is fully reflected in the valuation.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article

Related Articles
  1. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  2. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  3. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  4. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  5. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  6. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  7. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  8. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  9. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  10. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center