Saturday, May 27, 2006
From Info to Insight
SEC FILINGS GENERATE TRUCKLOADS of financial data for fundamental investors, but offer little guidance on what it all means. And most companies aren’t going to go much beyond what’s legally required in providing a perspective on their own numbers. Analysts, of course, can make sense of the figures, but they track only about 2,500 of the 9,000 publicly listed companies. So where can investors turn for complete—and understandable—financial information?
Sageworks, a Raleigh, N.C., company, hopes they will visit its ProfitCents (http://www.profitcentspublic.com) Website, where its software interprets financial data and then explains it. For $199 a year, a user can run an unlimited number of reports. In each of them, the aim is to offer a credible picture of how a company is performing and to describe the performance in straightforward language that a wide variety of readers can understand.
“Most investors can’t read financial statements,” says CEO Brian Hamilton, who co-founded financial reporting specialist Sageworks in 1998. Utilizing its patented artificial intelligence rubric, based on thousands of expert systems rules, ProfitCents can give any user a solid, factual understanding of a company’s finances, he says. The financial industry is the only one that ProfitCents doesn’t track, because its balance sheets differ from those for most publicly held companies, says Hamilton, a certified public accountant.
Investors can log on to the service through any browser and enter the ticker symbol of the company they want to analyze. They choose from three temporal comparisons: fiscal year to fiscal year, current quarter to year-ago quarter or current quarter to previous quarter. ProfitCents reviews the financial statements, and evaluates the firm’s performance over time. It also compares the results to the company’s industry peers. An investor can select from two different versions: Basic, which awards 1 [lowest] to 5 stars in four basic operational areas—Liquidity, Profits, Borrowing and Assets—and Analyst, which provides more depth and rates these four areas from 1 [lowest] to 100.
Once a version is chosen, the program crunches the numbers for a few seconds and displays its analysis, which can be printed or saved in Microsoft Word format.
Hamilton cautions that the ProfitCents analysis shouldn’t be used in isolation: it needs to be supplemented with valuation calculations and an assessment of how the company is positioned within its industry. “If you had our product and a good assessment of the value of the firm, you’d be able to make a reasonable investing decision,” Hamilton says. “I feel confident in the technology—it’s sophisticated and complex. But we can only get you 80% of the way there. We don’t replace Wall Street analysts,” he says.
The reports instantly identify financial trends that otherwise might take hours for investors to pinpoint. For example, one fiscal year comparison we ran provided the following insight into a small company’s profitability: “During this period, net profit margins have improved while sales have improved by 13.14%. The company is generating significantly more revenue than last period and managing it better by improving net margins—an excellent combination. It looks like the company is pushing itself nicely within its ‘relevant range’—the company’s operating range for its current cost structure. Even with all of the growth, the company has been able to maintain its control of direct costs, keeping the gross profit margin near where it was last period.”
There are caveats: ProfitCents doesn’t recommend buying or selling stocks, and its analysis is based on recent SEC filings, which aren’t always up-to-date. If you’re used to real-time stock pricing data, a company’s fundamentals may seem a little out-of-date.
But the analysis is a lot faster and generally more insightful than most shareholders can muster on their own. ProfitCents is a good tool for the serious fundamental investor.
E*TRADE’S TAKEOVER of BrownCo was phased in during the week of May 8. So far, mostly so good. The conversion of accounts has gone much more smoothly than E*Trade’s (ticker: ET) absorption of Harrisdirect customers earlier this year ("Seek and It Shall Find,” Feb. 20) when numerous communications problems arose and many account holders were upset. In contrast, one former BrownCo customer told us: “E*Trade went out of their way to make the transition successful and even called me at home on a Saturday to make sure I was able to log into my accounts.”
That’s not to say there weren’t any ruffled feathers. An investment adviser sent us a list of problems he and his clients had experienced. One customer, he said, was inadvertently given log-on access to 19 other client accounts via E*Trade’s customer service, and advisers were asked to share logon accounts (and passwords) with their clients because E*Trade’s systems couldn’t handle more than one view into an account online. Another Brownie convertee complained, “At E*Trade, I feel like someone is trying to sell me something every minute.”
From E*Trade’s vantage point, managing director Michael Curcio says the conversion “was executed successfully” and that the firm looks “forward to building a stronger franchise that blends the best of both businesses.”
Keep us informed about the progress and any other matters at firstname.lastname@example.org
TWO WEEKS AGO, we reported that Greenlightstocks.com, a Web-based stock analysis site, gave potential users a 30-day free trial. Alas, between filing the column and its publication, Greenlightstocks.com changed its trial period to seven days. President Gideon Vigderhous says he shortened the free trial period because some users were abusing it by, among other things, signing up multiple times under different addresses. However, he suggests that Barron’s readers interested in the 30-day free trial contact him at email@example.com
THE SEC RECENTLY announced a cut in the fee it charges brokers when a security is sold or a new offering is registered. News of the reduced fee was trumpeted with headlines about a billion-dollar savings. SEC Chairman Christopher Cox said in a statement accompanying the change: “This is terrific news for investors. Even by Washington’s standards, a billion dollars is a lot of money.”
I thought so, too, so I checked with several online brokers to see if they would cut commissions in October, when the new fees go into effect. Tom Sosnoff, CEO of thinkorswim (http://www.thinkorswim.com), a well-regarded online brokerage, definitely didn’t share the SEC’s enthusiasm. “They’re cutting a tiny fee, which is now $30.70 per million dollars (of total transaction value), to $15.30. Big whoop!” Sosnoff doesn’t see commissions dropping, despite the SEC’s grand expectations.
Published in Barron’s, May 22, 2006.