With the equity markets testing new bear-market lows as part of a five-month run that has seen the Standard & Poor's 500 stock index fall by 38%, it can be disorienting to discover a stock moving aggressively in the opposite direction.
With the equity markets testing new bear-market lows as part of a five-month run that has seen the Standard & Poor's 500 stock index fall by 38%, it can be disorienting to discover a stock moving aggressively in the opposite direction.
That is exactly the situation with TeleCommunication Systems Inc. (TSYS), an Annapolis, Md.-based diversified technology company that not only was one of 2008's top stocks, gaining 130%, but continues to defy the overall market.
The stock, which closed Friday at $9.23, was up 7.4% since the start of the year, compared with a 14.7% decline by the S&P 500.
Of course, if we learned anything from the recent bubbles and implosions across various markets, it is that it is never too early to raise the caution flag and question valuations — even if only for peace of mind.
Depending on how you calculate this stock's price-earnings ratio by deducting certain tax benefits, the p/e could be as high as 18 or as low as 7.
Meanwhile, there are still some bulls touting buy ratings on the stock with price targets in the $10 range.
Even factoring in a certain degree of herd mentality in the market that might naturally favor any stock on the rise these days, TeleCommunication Systems seems to be enjoying some legitimate momentum.
The most recent boost came in the form of the company's Feb. 5 earnings report, in which it announced it brought in $220 million in revenue last year. That represented a 53% increase over 2007, when revenue was more than $144 million, and beat market expectations of between $200 million and $210 million.
Last year, the company had net income of $57.6 million, or $1.23 a share, compared with a loss of $1.3 million, or 3 cents a share, in 2007.
"This company has a lot of shots on goal, and all the shots look like they're going to score," said Jim Kennedy, president of Marathon Capital Management LLC, a Hunt Valley, Md.-based asset manager that oversees $175 million.
The key drivers, according to Mr. Kennedy, are a backlog of government contracts and increased volume from proprietary software, as well as patent awards and patent litigation settlements.
The company, which has a $400 million market capitalization and 44 million shares outstanding, was also added to the Russell 2000 Index last year.
TEXT MESSAGING
"We had a number of things go well for us in 2008," said Tom Brandt, TeleCommunication Systems' chief financial officer.
Part of what continues to go well for the company is the success of a once-obscure software that it developed in 1996 to allow cellular phone carriers to offer text-messaging services. The short message service is a software platform inside the phone carrier's network that delivers text messages between phones.
"We got into the [SMS business] before a lot of people realized that people weren't going to carry pagers anymore," Mr. Brandt said.
There are still only a handful of companies that offer SMS, and TeleCommunication Systems is already handling about 25% of all text messaging in North America.
"We're still trying to figure out why text messaging continues to balloon," Mr. Kennedy said. "But I've always contended that one of the last things people will give up when times are tough is their cell phone."
In addition to the SMS business, TeleCommunication Systems is leading in the development of so-called location-based services, which like SMS, is software to be added to a cell phone carrier's network.
Comparable to global-positioning-satellite technology, the location-based service is designed to allow consumers to customize their service.
The company's early advantage in the SMS area was achieved partly through experience in developing military applications, Mr. Brandt said.
TeleCommunication Systems was founded in 1987 by Maurice Tose, who is chairman, president and chief executive. He is a graduate of the U.S. Naval Academy in Annapolis, Md., and guided the company early on toward government contracts for systems integration software.
The company, which went public in August 2000, is one of six primary vendors on a $5 billion government contract to build satellite communication kits for the military.
The company's annual revenue, which is divided almost evenly between government and commercial technology, is bolstered by more than 100 current or pending patents, which are often "monetized" through the sale of a patent or through litigation related to patent infringement.
Over the past two years, more than $18 million was generated through the monetization of patents.
Questions? Observations? Stock tips? E-mail Jeff Benjamin at jbenjamin@investmentnews.com.
