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Technology Stocks : FactSet Research Systems - FDS
FDS 340.81+0.6%12:56 PM EDT

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From: JakeStraw1/4/2006 3:08:02 PM
   of 15
Plenty of Room for FactSet
Tuesday December 20, 10:09 am ET
By Stephen D. Simpson, CFA

Funny thing about FactSet (NYSE: FDS) - as much as I like the service, I find myself forgetting just how small this company really is. After all, take this quarter's revenue, multiply it by four, and you get about $360 million in annualized revenue -- tiny compared with the likes of Bloomberg, Reuters (Nasdaq: RTRSY), and Thomson (NYSE: TOC).

"So what?" you may ask. Well, it means that although this company has already been a tremendous winner in the stock market (trading in the low single digits just six or seven years ago), there is no reason to think it's close to hitting a wall with respect to growth.

In fact, results for its fiscal first quarter look like more of the same steady and sustainable growth we've seen from this company in recent quarters. Revenue rose than 21%, and while operating income according to generally accepted accounting principles was up only 6% because of stock compensation expenses and some tax matters, net income climbed 17%. Operating cash flow was flat for the quarter, but as I've said in the past, quarter-by-quarter cash flow analysis can be more misleading than it is informative.

So what could propel this still-small company even higher? First of all, the company has considerable potential to grow its overseas business, as less than a third of its subscription revenue comes from outside the United States.

What's more, the company has quite modest capabilities right now in fixed income. As much as we at The Motley Fool talk about equities, fixed income is an enormous worldwide market, and many of your leading investment banks, such as Lehman Brothers (NYSE: LEH), Citigroup (NYSE: C), or Goldman Sachs (NYSE: GS), get a large amount of their trading revenue from their fixed-income desks. And that's also true for currencies, commodities, derivatives, and other sorts of financial instruments - areas where FactSet doesn't yet have a considerable footprint.

Put simply, investment professionals and traders consume ever-larger amounts of information on a day-to-day basis to do their business. Accordingly, it seems pretty safe to say that the demand for information services, like those provided by FactSet, will continue to be in ever-higher demand, barring a total market meltdown. Although these shares aren't exactly cheap by conventional measures, this is a well-run, high-potential company with plenty of room yet to run.
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