Many stocks these days seem to live and die by their most
recent quarterly results.
What if I said I found a stock whose customers are virtually
guaranteed not to go out of business, a client that will be
What's more, the customers are likely to generate more
revenues every year no matter what, and the more the client
grows, which it seems to always be growing, the more the stock
If the stock sounds too good to be true, it's not. If it
sounds like the government, you're getting warm.
NIC, Inc. (Nasdaq:
is a long established company that provides services to local,
state and federal government agencies. Specifically, it builds
and maintains official websites, online services and secure
payment processing solutions for more than 3,500 government
customers in 29 states across the United States.
The United States government tends not to get smaller from
year to year. Even in the maw of the Great Recession, in most
cases, it was only the rate of growth in government spending that
declined, not the level of spending itself. And, now that the
recession is over, business is booming.
NIC is ranked No. 20 on Forbes list of the "25 Fastest Growing
Tech Companies in America," and is a member of the S&P
SmallCap 600 Index. Its revenues have grown from $56 million in
2004 to $249 million last year. The company has a reliable net
gain of government clients each year.
The firm maintains ecommerce functions for everything from
state motor vehicle registrations to hunting licenses. And it
does a good job of it - NIC securely processes more than $22
billion in payments for government agencies annually.
NIC's business is focused mainly around state and local
government agencies, with a few inroads at the federal level --
most notably, the U.S. Department of Transportation. NIC already
has contracts with 29 state governments, so new business on the
state level could dry up to some degree in the coming years.
But there are still plenty of greenfield opportunities ahead
The company aims to earn contracts with federal agencies --
primarily virgin territory with very large potential -- and has
received requests from foreign governments to provide
e-government services, said CEO Harry Herington during the Q2
conference call on August 7.
With a market cap of $1.24 billion, NIC is regarded a
small-cap stock, with healthy institutional sponsorship of 80.6
percent of shares. Liquidity is fairly low, however, at about
300,000 shares traded daily.
EGOV is not an inexpensive stock. It sports a 39.5
price-to-earnings ratio versus the S&P 500's P/E of 19.4. But
industry wide, the average P/E for the Internet software &
services category where NIC resides is an even loftier 44.26.
There are no signs that point to a hiccup in EGOV's future
working with governments. Revenues are up 350 percent over the
past 9 years. Profit margins are consistent and the company has
NIC is even able to brag that it decreased government
spending. For instance, the Utah.gov website it devised for
Utah's state government makes more than 600 services available
online even when the state offices are closed. This upgrade has
reduced previous labor costs by more than $4 million.
Also, this creative company created something it calls the
"self-funded" approach that helps build e-government products
without requiring tax appropriations.
With this approach, governments in 23 states charge a
transaction fee (in addition to any required statutory fees) for
users of some of their NIC web sites or related services. That
way, the government agencies get the websites or related services
from NIC for practically nothing upfront, the NIC contract
charges are reimbursed from the transaction fees and the costs
are borne directly by corporate or individual taxpayers who use
the web sites.
Risks To Consider:
A rival service provider may try to erode NIC's market share.
None appear to be on the horizon but any firm with the right
backing could rise quickly. In the event of a concerted
cyber-war, NIC could be a target, but so far the company has
managed to avoid significant damage from hackers.
Actions To Take -->
Go long NIC Inc. (
). The company is a medium-to-long term buy given its reliable
base of revenues and earnings.
NIC is not the only company with lucrative contracts with
the United States government
. In the most recent issued of High-Yield Investing, my
colleague, Nathan Slaughter, profiled a firm with Uncle Sam as
its main client and a dividend yield of 7.4%... and that stock is
just the tip of the iceberg. For more information about
High-Yield Investing -- and the name and ticker symbol of the
other government-backed stock --