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This article and the accompanying Stock Selection Guide ("Guide") are for illustrative purposes only and should not be construed as a recommendation to trade securities of the subject company.(Guide omitted) The Guide was prepared approximately six weeks prior to publication. Accordingly, when completing their own study of this company, readers should update themselves on current corporate developments and data and consult the Stock Selection Manual for details of this stock-study procedure. Editor
SoftKey is in the business of marketing and distributing low-cost, consumer-oriented software for PC and MAC platforms.
The company operates by acquiring established software companies or licensing established software products from original developers. SoftKey resells the software under its private-brand labels (the Key label for small business applications and Titanium Seal label for entertainment/educational titles). Both types of products are sold at significantly lower prices than the developer's branded products but have the same functionality.
Products are distributed through mass merchandisers (e.g. Wal-Mart, Office Depot); computer retailers; and, direct-mail catalogues in North America. In addition, the company does computerized tax processing for individuals and corporations.
PICTURING HISTORICAL GROWTH
REVENUES
As indicated in Part 1 of the Guide, SoftKey's revenues have grown at a compound annual rate of 80% during the last six years. Acquisitions and increased market penetration are the principal reasons for this high growth (and a small starting base). The revenue base is undergoing major changes.
Software publishing activity accounted for 52% of revenues during the fiscal year ending in January, 1993--but only 24% in fiscal 1992. In 1993, 31% of revenues were derived from computerized income tax processing for personal and corporate customers versus 50% in '92. Computer consulting activities accounted for 17% in of revenues in 1993 versus 26% in '92.
EPS
During its first two years as a...