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Tickers in this Article: EIGI
There are some 75 million small and midsize businesses around the world. If they plan on competing in an increasingly connected world of mobile devices and e-commerce, they'll all need to have an online presence. 

More than three-fourths of these 75 million SMBs don't have a basic website -- so this market is grossly underserved. Endurance International Group (Nasdaq: EIGI), which recently went public, is looking to change this.

Endurance is one of the U.S.'s top hosting companies, with a number of brands, including HostGator and Bluehost. Since its October IPO, EIGI is up 10%, and a number of positive aspects make the company a compelling growth investment. 

Endurance estimates its share of the SMB website market at 5%, which means there's a lot of room for growth. But the company offers more than just website hosting. Endurance's variety of products and services -- including Web hosting, on-demand computing, security, marketing solutions and site analytics -- is relatively unrivaled in the space, allowing it to serve a broad array of companies. 

In addition to the services listed above, Endurance also has its Mojo Marketplace product, which allows companies to develop software solutions and sell them to any number of Endurance's 3.4 million subscribers. Mojo Marketplace allows SMBs to buy the latest website templates, plug-ins, logos and scripts from some of the most popular open-source applications, like WordPress, Joomla, PrestaShop, Concrete5 and Drupal. 

With companies looking to expand their presence in an increasingly competitive market, Endurance is in a great position to capitalize. Small and midsize businesses are expected to be spending $96 billion a year on cloud-based services by 2015, representing a compound annual growth rate of 28% since 2012.

Endurance can increase its revenue in two ways: by growing its subscriber base -- which it can accomplish as the market grows and through greater market penetration -- and by boosting its average revenue per subscriber. The company's roughly 3.4 million subscribers spent an average of $13.01 during the second quarter. The ability to upsell its customers to products with higher revenue per subscription is one of Endurance's most important growth drivers.

The company also could increase subscriber revenue through cross-selling its products. Its recent acquisitions, including HostGator, present the opportunity to cross-sell its other products to those subscribers. And its subscribers and customers are a loyal bunch, as seen in its stellar 99% retention rate.

Endurance has relied on word-of-mouth marketing for advertising, but the company plans to increase its marketing spending to help drive sales. 

Driving Endurance higher should be the rising level of small businesses, more specifically, the increase in businesses that will be looking to boost their online presence. A continued rebound in the economy should help loosen SMBs' purse strings and further drive revenue for Endurance. 

Endurance currently trades at an enterprise value-to-sales multiple of less than 6 and less than 4.5 when using 2014 sales estimates. This is on the low end among the major software-as-a-service (SaaS) companies: Salesforce.com trades at a multiple of 8.9, Proofpoint 6.3, Splunk 22.7 and ServiceNow 16.7. Given Endurance's scalable revenue model and ability to generate cash, a multiple of 6.5 for 2014 sales -- which yields a $22 price target -- is justified. 

Risks to Consider: Endurance is dependent on SMB spending, which means it relies heavily on the broader economy. Any setback in the economic recovery could mean a decline in revenue. 

Action to Take --> Buy Endurance for nearly 70% upside to $22.

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