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Fundamentals

Written by Thomas White and Ophir Gottlieb, 12-29-2015
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PREFACE
There is one little known technology company behind the entire "eGovernment" services and payment system and it's making a killing. It's no surprise that more than 90% of its stock is owned buy institutions, while the rest of the market has probably never even heard of it.

Boring and technology are two words rarely put together, particularly when talking about the stock market. However, we present to you now the rarest of all beasts, the unicorn of the stock market, the boring, small cap, technology, growth stock: NIC Inc. (EGOV).


STORY
EGOV is the leader in eGovernment sites, services and secure payment processing. The EGOV self-funded model allows the company to offer its eGovernment platform at no cost to governments. Small fees are applied to a limited number of services and this covers the cost of building and maintaining the platform as well as a revenue stream for EGOV.


That's a brilliant business model. There is probably no more reliable customer than government, and as this first chart shows business has been very good. Revenue (TTM) has increased every quarter for over 10 years.


Revenue is up nearly 8% in the last year and 18% in the last two-years reaching a trialng-twelve-month all-time high of $287 million. The stock market likes the growth: EGOV is up 12% in the last year and 103% over the last five years while the S&P 500 has been up 0.80% and 63% in those time frames, respectively.

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GROWTH
Plenty of opportunities for growth still remain. Although the company has partnered with 30 out of 50 states, some of the largest states like Florida, Illinois, California and New York remain untapped, not to mention the biggest opportunity of all: the Federal Government.

Operationally, EGOV has excelled. Operating Revenue/Operating Expenses have improved from ~1.2 to ~1.3 over the past 5 years. As this company grows it becomes more efficient at generating profits. Here's a chart of net income (TTM) (after tax earnings) over the last 13-years.



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We can see the firm just reported record high earnings in the trailing-twelve-months, and has risen abruptly from the doldrums of 2003, when the firm reported losses.



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With no debt and lots of cash being generated by operations, EGOV has all the cash it needs to fund expansion and pay back to shareholders. Although the company doesn't have a regular dividend it does have a habit of declaring special dividends including one coming up this January.



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CONCLUSION
To be sure, there is nothing sexy about EGOV, but that’s OK. What’s not to like about a sterling, debt-free balance sheet, steadily improving margins and continuously growing revenues ? What’s more the biggest opportunities for EGOV are as yet untapped.

The company has an annuity like revenue stream that is practically recession, and probably even depression proof. Death and taxes may be the only certainties in life, but cutting a check to the DMV for your auto registration renewal or your driver’s license renewal isn't far behind, and EGOV will be there getting their piece of the action.

The top 1% of wealth owners in the United States and their hedge fund managers are keenly aware of the companies like EGOV that very few "non one-percenter's" know of. If we're not using the same data and information, then we're trading against people that simply have more information then we do. It's time to stop the wealth transfer to the top 1% from the rest simply because of unfair access to data.

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Thanks for reading, friends.