Like many other investors, my blood gets pumping a little faster through my veins when I stumble upon a promising small cap stock. This one is no different and just reported a fine quarter and was rewarded with a nice pop. I think it has much further to go on the upside. Meet Merge Healthcare (MRGE).
According to Yahoo! Finance, the company provides health information technology interoperability solutions. It provides products ranging from standards-based development toolkits to clinical applications. The company offers Merge iConnect, an interoperable image exchange and management suite.
Great Quarter
Sales for the first quarter of 2011 grew over 150% to $52 million while operating income grew to $5.8 million versus a loss of $3.2 million last year. Digging a little deeper on the balance sheet, I like the fact that days sales outstanding (DSO) dropped to 91 from 94. This indicates greater efficiency and is a bullish sign.
“Merge delivered a very strong Q1 performance with record sales, while at the same time we positioned our portfolio to help our customers achieve Meaningful Use,” said Jeff Surges, Merge’s Chief Executive Officer. “During the quarter, we added significant talent to our organization through our ongoing investment in sales and marketing teams, which is expanding market awareness for our solutions.”
Investors rewarded the $483 million market cap stock with a big gain to a new 52-week high on huge volume after the results. The question now if it has further upside. I believe it does in a big way. Growth has been accelerating of late and the stock is trading at about 12x EBITDA, which is a discount to its peers.
The balance sheet currently does not look great, but that is normal with a company undergoing a turnaround. Momentum investors will also be interested in the stock now with new highs being reached. Turnaround stories provide explosive gains as investors return and regain faith in the name. If management can continue to execute, this could be a $7.50 stock soon.
A Nice Juicy Small Cap For Your Portfolio is an article from: 
