Solium Capital pullback is a buying opportunity, says Pardeep Sangha

Noting that Solium has declined by 15% since his last published research on March 20th, Sangha today upgraded his rating on the stock from “Neutral” to “Buy”, while maintaining his $8.25 one-year target.

Sangha says recent general weakness in the tech sector and the March 21st announcement regarding Solium CEO Mike Broadfoot’s automatic securities disposition plan (ASDP) are likely the culprit for the stock’s weakness. Under the plan, Broadfoot will sell up to 2.1-million shares over the next two years.

But the PI analyst says the fundamentals on Solium remain solid, noting that the company’s recent Q4 results revealed that revenue had increased 30% year over year. Sangha says he is expecting record results for Q1, 2014 and a full fiscal year that will top 2013’s topline by 16% to reach $79-million, with EBITDA of $20-million. The following year, he expects Solium will earn $23-million on revenue of $89.5-million.

Sangha says that after trading at a premium to its peer group, Solium is now valued at 3.3x EV/Sales and 13.2x EV/EBITDA, well below its peers valuation of 4.0x EV/Sales and 14.7x EV/EBITDA.