Investors don't get especially big windows to buy undervalued tech growth. While TIBCO Software (Nasdaq:TIBX) actually did look undervalued about three months ago, the stock has shot up by about one-third since then. The question, though, is whether investors should still stick with a story that looks to be improving. If TIBCO can continue to build its reputation in applications like complex event processing, visualization, and real-time business intelligence, scarcity value could continue to push this stock.
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

A Strong Start to the Year
TIBCO didn't beat by a lot this quarter, but it was still a strong quarter. Reported revenue rose 23% and license revenue rose 19% on a constant currency basis, and that's good. What I think is more impressive is the 18% growth in deferred revenue.

Deferred revenue is not a perfect future proxy, but it is a strong indicator that business is solid here. It was also encouraging to see that service-oriented architecture (SOA) re-accelerated (up 22%), while business process management and optimization both grew by double-digits.

Margins also looked good. Operating income rose 28%, and TIBCO did see a little leverage on sales and marketing as it declined about 20 basis points on a percentage of sales. As companies like Red Hat (NYSE:RHT) still struggle to show marketing leverage, it's a positive for TIBCO.

SEE: How To Decode A Company's Earnings Reports

Carving Out Valuable Businesses
TIBCO is a small fish in the infrastructure software sea. Microsoft (Nasdaq:MSFT), Oracle (Nadsaq:ORCL), SAP (NYSE:SAP), and IBM (NYSE:IBM) are substantially larger and IBM in particular has a very sizable share in the SOA market.

It's to TIBCO's credit, then, that they try to position themselves for where the market is going. The company has good exposure to growth segments like analytics and social enterprise software, and solid positioning in real-time intelligence and complex event processing. As enterprise data demands increase, that exposure should become even more valuable.

I will be curious to see if TIBCO goes into play at some point in 2012. Analytics is one of the big must-have components of the evolving Big Data theme and it would seem that any of the big players could benefit from adding TIBCO. What's more, there just aren't that many quality middleware companies left to buy anymore.

The Bottom Line
On the assumption of nearly 13% in compound free cash flow growth over the next decade, TIBCO looks fairly-priced today. Given TIBCO's scarcity value and market position, I suspect that a meaningful discount to fair value is only going to show up if the company significantly disappoints the Street and/or if the market goes "risk-off" and sells down tech indiscriminately.

As a result, names like EMC (NYSE:EMC) or NetApp (Nasdaq:NTAP) are probably cheaper Big Data plays today. That said, I'd be sorely tempted to relax my own value discipline if TIBCO shares slid back into the twenties in the next few weeks.

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

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

Related Articles
  1. 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.
  2. 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?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  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 >>
Trading Center