Analytics is an under-appreciated component of Big Data, but one that companies like IBM (NYSE:IBM) and SAS have targeted as key growth areas. Although Israel's NICE Systems (Nasdaq:NICE) is perhaps better known for its surveillance and security applications, enterprise interaction and transaction analysis looks like an increasingly valuable addressable market for the company.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

OK Performance, but Orders a Concern
NICE Systems did alright for the first quarter, as revenue rose 15% enterprise revenues rose 16%, while security revenue rose 11%. Margins were not especially strong, though, as GAAP gross margins fell more than three points and operating income dropped 45%. On a non-GAAP basis, operating income kept pace with revenue at 15% growth.

These results were consistent with analyst expectations, as was management's guidance, but orders did soften to a point where the company's book-to-bill slipped below 1.

SEE: Understanding The Income Statement

Data Analysis Is Where Value Is Created
There's no question that companies like EMC (NYSE:EMC) and NetApp (Nasdaq:NTAP) have made quite a lot of money from selling equipment to store data. Likewise, companies like Oracle (Nasdaq:ORCL) and SAP (NYSE:SAP) have built large businesses on the back of software that organizes, sorts and manipulates that data to inform or support business decisions.

It's all well and good to collect, save and sort data, but the real value comes from figuring out what the data really means and how companies can use it to improve their operations. With NICE, that means capturing data from phone calls (voice logging), email, chat or IM and so on and then analyzing that interaction and transaction data.

Call centers can use this information to reduce wait times, improve customer satisfaction and retention or even inform real-time sales floor decisions. It's also useful in fraud detection, and NICE has been looking to sell more of its analytical solutions to commercial banks, investment banks and other financial institutions.

SEE: Earning Forecasts: A Primer

NICE Would Make a Nice Fit
I'm a little surprised that NICE is still an independent company. With Verint (Nasdaq:VRNT), it's one of two companies that sell voice logging and analysis solutions. Moreover, as companies like IBM, Oracle and SAP all look to improve their analytical software and service capabilities, this would seem like a natural fit.

Consider the case of IBM. IBM already sells mainframe systems, servers, storage equipment and an array of software solutions, not to mention extensive consulting services. It would seem that NICE Systems' solutions would naturally fit into the ecosystem and allow IBM to offer an even more robust array of analytical capabilities to its customers.

The Bottom Line
Given the rate at which companies are accumulating data, it seems reasonable to project strong ongoing demand for analytical solutions. While NICE's GAAP-based fundamental valuation metrics look high, the stock actually looks undervalued on a discounted cash flow basis. Even with just modest high single-digit free cash flow growth, NICE shares could be worth over $50. Although the company is vulnerable to the somewhat cyclical enterprise IT market, ongoing demand for data and data analytics suggests this is a stock worth further investigation.

SEE: 5 Must-Have Metrics For Value Investors

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

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Markets

    Why Gluten Free Is Now Big Business

    Is it essential to preserving your health, or just another diet fad? Either way, gluten-free foods have become big business.
  4. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  5. Entrepreneurship

    Top 10 Side Jobs You Could Start Now

    Ways to make extra cash in your spare time.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
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 >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!