Sapiens International (SPNS) is one of a handful of names that recently showed up as I screened for positive EPS, Revenue and Margin trends.  The $577.8M provider of software solutions across the insurance industry is an interesting niche value for growth stock.

Sapiens has 1,700 employees and 190 customers with 34% exposure to the US, 24% UK, 16% Israel, 15% Europe and 11% APAC, and has posted revenue CAGR of 16% 2011-2015.  SPNS has recently pivoted to next generation insurance & technology solutions and is expanding to financial services.  Currently, 80% of its business is insurance software for Claims, Benefits, Policy, and Billing, while 20% is Tech solutions for business decisions and application development platforms.

The insurance IT market is large and growing, Sapiens sees a $30B addressable market and spending set to grow 6-7% the next two years.  SPNS has made 6 acquisitions in the last 5 years and continues to look to acquisitions to expand geographically, boost its customer base, and expand complementary solutions.  Revenues are consistent with customer stickiness, 80-85% of revenue from existing customers and a long-term engagement cycle.  Insurance industry modernization and regulatory changes are positive tailwinds for SPNS growth cycle moving forward.

Sapiens trades 19.5X Earnings, 3.1X Sales, 3.2X Book and 23.7X FCF with a 1.69% dividend yield and a strong balance sheet with plenty of cash and not very much debt.  SPNS is expecting to grow revenues at 17% Y/Y in 2016 and 14.9% in 2018 and EPS growth of 16.7% and 14.9% respectively.  Looking at last quarter SPNS saw strong revenue growth in the US, UK, and Asia Pacific, modest growth in Europe, and flat revenues in Israel.  The commentary was also positive noting improved performance across all of its offering, in all geographies and from both new and existing customers.  The CEO also noted strong demand for its products and services, and a number of significant contract wins that enhanced its competitive market position.

Analysts have an average target of $13.33 on SPNS, 3 Buys, 1 Hold and 6 Sells but its sees limited coverage.  Roth Capital cut shares to Sell last week with an $11 target.  After the Q4 report Needham raised its target to $15 noting strong demand and win rates and benefits from secular tailwinds as insurance carriers move from in-house to third-party software solutions. 

The chart shows a strong trend higher since the 2009 low with multiple periods of multi-month consolidation before taking a new leg higher.  SPNS currently is in one of these monthly bull flags and nearing a breakout above $12.70, one that should target a move to $17.50.

In closing: Sapiens remains attractive despite the 16.15% YTD, a combination of technical momentum and strong earnings growth numbers while not being rich on valuation, and even offering a nice yield.  The Company continues to execute well and take market share, a small player in a massive industry, which leaves plenty of room for incremental revenues especially as it expands its product offerings.