QlikTech, the Radnor business-intelligence (BI) software company whose industry-leading prospects are rated so high that the stock trades at 101 times last year's earnings and 64 times this year's projected earnings, will have an increasingly tough time impressing investors, in the face of growing competition, as it tries to expand its product list, tech analyst Yun Kim warns, in a report for clients of Janney Capital Markets, Philadelphia.
Kim expects continued double-digit sales and profit growth (with a 90% operating-profit margin.) But QlikTech's "aggressive marketing" has brought it into "direct competition against large-tech bellwethers who have more sales and financial resources," especially Germany- and Newtown Square-based SAP AG's rival Business Objects service, IBM's Cognos, and Oracle and Microstrategy services, as well as specialized, soon-to-IPO Tableau Software, which offers a cheaper if more limited BI product. (Kim rates SAP "buy.").
QlikTech is relying more on larger deals ($250,000 and up). That sounds like progress. But Kim says those deals also "carry higher execution risk" and result in the kind of bumpy earnings (as happened last year) that can spook investors.
If QlikTech suffers growing pains, will it at least be able to sell to a larger rival at a fat profit? At 42 times its expected 2014 earnings, in a data-visualizaton and -discovery business that Kim says is "not highly proprietary and is not difficult to duplicate," QlikTech won't likely attract buyers from big software companies, Kim says: "There is little M&A interest" in small data-discovery and visualization vendors from larger companies that "already have large BI presence." In short, QlikTech stock, at around $26 a share, is already "fairly valued.... Upside potential is limited."