GeoInvesting believes Selectica Inc.’s (SLTC) management has put the company on a path to accelerate the growth and customer adoption of its SaaS model. Selectica provides cloud-based software solutions. Selectica stock’s recent pullback is likely a result of financial performance that did not live up to expectations, presumably due to execution problems in the final innings of the company’s multi-year restructuring process. After further due diligence, we believe management has addressed these issues. Some of the steps management has taken to fine tune its business model include:

• Extra emphasis on customer service;
• Broadening its product offering;
• Completed one strategic acquisition and in the process of completing another that nearly triples the size of its customer base (from 120 to 350 customers), providing what appears to be tremendous cross selling opportunities.

Selectica E/V Sales Multiple Expansion

The EV/Sales multiple of 2.6 should see significant expansion to somewhere between the 4 to 8 range. Although it will understandably take time for the company’s initiative to fully reflect in its financial results, we think that once the market understands what the company is doing, in conjunction its competitive advantages, there should be a commensurate increase in SLTC’s value.

We were also impressed that management has put their money where their mouth is by investing in shares of SLCT in a number of financial transactions over the last two years, even as the company was going through implementation challenges of its strategic growth plan.

Brief History

On January 3, 2013, GeoInvesting coded SLTC as a GeoBargain and released the bullish article, “Is Revamped SaaS Company Selectica Ripe For Takeover?” Shares were trading at ~$6.70 at the time of our article. The stock quickly ran to a high of $10.50 on February 22, 2013 before retraced back to the mid $6.00 level, where it stands today.

We expect to follow up with a full report in the near future.

To stay ahead of the market with GeoInvesting arbitrage and learn about investment ideas not yet digested by the market, Sign up now for More Research and Insight