Inforte (NASDAQ: INFT) - $3.98

Inforte (NASDAQ: INFT) is currently trading at $3.98/share, which is awfully close to it's 52-week low of $3.68.

Inforte provides business consulting, strategy, and analytics services and their web site is http://www.inforte.com/. This company went public back in 2000 at $32 per share and then went up as high as $80 or so back in the Internet craze days.

The company then traded in the $6-$7 range and then crept back up to $13 in 2002-2003. I know this because back at Stetson when I was in the Roland George Investment Program, this was my pick that I discovered and had to present to the program's other students and board of directors to purchase. I cited their profitability, lack of debt, etc. and the fund picked up 40,000 shares or so around $7-$7.25 and then sold out about a year later at $13.

I also suggested Stamps.com (NASDAQ: STMP) at $3.50 in the same presentation, but that pick was rejected. STMP hit $30+ earlier this year. Too bad I didn't buy any of that one myself.

Anyway, here is Inforte's deal, in my opinion.

The company's business prospects and revenue have slowed, but they have been improving their newly developed customer analyltics line. Analytics is basically using data to track business trends and help make better decisions. Inforte is moving in this direction and has had some success. However, while this is all good, I do not believe this is the factor that will lead them to do well. Although, I do believe that they will improve their revenue and profitability, but we will not see that for 9-12 months.

A going private or acquisition transaction would be a more likely event that would return greater value to the shareholders, and I see that happening in the $7-$8 range. Perhaps as high as $12, but I think $7-$8 is more realistic.

Here is why

1. The company has $2.52/share in cash and $0 debt. The cash alone is about 65% of their stock value. Additionally, the interest on the cash alone will be sufficient to generate postive cash flow for the company. even in the event they do suffer a loss (which is possible for the subsequent quarters). The additional cash should help build this cash stash and make for even a more attractive valuation at $4.
2. The company is trading at 1.1 tim
es sales (a buyout would likely yield at least a 2.0-2.5 times sales valuation, meaning basically double the stock price)

3. The company is trading at 0.88 times book value. This is also attractive. Basically, right now, the book value alonesuggests that the company is worth at least $4.50 per share. Basically, meaning, if you purchase for $4 it is worth at least $4.50 on paper.

4. Institutional purchasing is up since the last quarter, with over 650,000 shares being purchased, or about 5% of the total shares outstanding.

5. The company has put aside about $5M for a stock re-purchase that has already been authorized. The company has said they will wait for the right time to play this card and repurchase shares on the open market. In the past, they got badly burned buying shares back on the open market, so they are more cautious this time around. However, when the time comes, we may very likely see an additional 800,000-1.2M shares, or about 10% of the shares outstanding, repurchased on the open market.

I think this is a great buy now and should be accumulated at any price under $4.50 - at least, that is what I plan to do. This should be an easy 50%-100% gain within the next 12-18 months.