Value Microcaps Motherboard

[whyme2005]

DWCH $4.21...COMPANY EXECUTIVES EXERCISED OPTIONS AT $4.5 ON FRIDAY.

(link bekow in updated DD):


Datawatch Corp reported a record 4Q on 11/17/05 both in terms revenues and net income, beating analyst's expectations by a wide margin.


11/17/05 EARNINGS SUMMARY:


- 4Q 2005 Revenues: $5.7M vs. $5M in 4Q 2004

- 4Q 2005 Net Income: $617K or 11c/share vs. $266K or 5c/share

- Analysts expected revenues of $5.6M and net income of 6c/share

- Cash position: Increased to $4.9M in 4Q 2005 or $1/share from $4.3M in 4Q 2004, a 20% increase.

- Long Term Debt....ZERO

- Float......2.4M shares

- Market cap of $22.5M...

- Undervalued P/S ratio of 1.0. Industry average is over 3.

- Steady revenue growth year after year...quarter after quarter.

- Projected revenue for 2006 of $24M

- Projected net income for 2006 40c - 50c/share

- Undervalued forward P/E of about 10 for a growth company entering new markets

The CC was very upbet. The bottom line: DWCH growth in revenues and profitability will continue into 2006 and beyond at an accelerated pace.

The change in business model that the company decided to implement in 2004 to grow revenues and eventually the bottom line is finally paying off.

You can easily see below the sequentially stronger results in every quarter of 2005:

4Q 2005: Rev. $5.7M, net income of 11c/share
3Q 2005: Rev. $5.6M, net income of 6c/share
2Q 2005: Rev. $5.1M, net income of 0c/share
1Q 2005: Rev. $5.0M, net LOSS of 3c/share

Revenues for 2005 were $21.5M vs. $19.3M in 2004 and $17.7M in 2003. DWCH is on a path to increase revenues to about $24m in 2006.

DWCH announced late last year that it would implement a new business plan and increase sales and marketing expenses. In doing so, the company had to absorb upfront costs that resulted in no income and a loss in the first 2 quarters of 2005. This resulted in a drop in net income from 19c/share in 2004 to 14c/share in 2005. However, 2006 net income is going to grow exponentially based on what was demonstraded in the last 2 quarters.

DWCH CEO had this to say earlier this year about the growth-oriented business plan:

...."The upfront cost of selling and implementing these projects is absorbed currently, but the recurring revenue stream will be recognized over the period that the service is provided. We believe this model will provide a more predictable stream of future revenue as the customer base expands...."

It is obvious that the company is executing its business plan eaxactly as planned in a focused, and efficient fashion.

Based on a projected 2006 net income of 40c/share, DWCH with $1/share cash and no long-term debt is trading at a P/E of 10 and a P/S ratio of 1.1. Industry averages are 3 times as high on both criteria.

Fair valuation of DWCH is at least $8/share based on conservative ratios of 20 P/E and 2.0 P/S.

The street will realize this soon, and with a float of only 2.4M, DWCH might just be the best buy in the market under $5.

Insiders obviously know that. They made a strong statement in that regard buy converting 27,000 shares at $4.5 on November 19.......or bout 5% premium over the closing price on November 18.

http://www.pinksheets.com/quote/filings.jsp?symbol=DWCH

Don't forget that 1Q 2006 earnings results will be announced in less than 2 months from now. With the current momentum, the Q/Q revenue and net income comparables will be staggering. Remember that DWCH posted a loss in 1Q 2005 and is expected to post double-digit net income in 1Q 2006.

Investors are starting to note the huge long-term potential of DWCH as seen in the chart below. If you look at the weekly bottom chart, you will notice that DWCH traded a lot higher than the current price even though the fundamentals today are stronger than ever. In fact, 4Q 2005 was the strongest quarter since 2000.

http://stockcharts.com/gallery/?DWCH

I believe that with continued successful excecution of its business plan and based on new products in growing markets, DWCH will be trading in the $15 -$20 range within a year.

Here is the 4Q earnings release. I strongly recommend that you take the time to hear the CC (link in the earnings release).

http://biz.yahoo.com/prnews/051117/neth013.html?.v=33

About Datawatch:

Datawatch develops a full suite of software products widely used in the Accounting, Compliance (Sarbanes_Oxley), Goverment, and Healthcare industries. For instance Datawatch Monark software helps automate financial reporting by combining and mining totally separate databases to produce seamless reports. This software is widely used in Sarbanes-Oxley compliance reporting and is one of the fatest growing revenue streams for datawatch.

Datawatch software ranges from desk-top solutions to enterprise-wide portals which fit into an organization's existing IT environment. Without the need for any hardware or programming resources, Datawatch's products enable managers to transform data from any system into meaningful information.

Datawatch recently introduced Monarch Data Pump Version 8 or MDP8. MDP8 is a server-based information delivery and data ETL solution which automatically imports, transforms and delivers customized data mined from report files, databases, spreadsheets, ODBC data sources, HTML files and now PDF files, and includes the ability to export and deliver the data in multiple formats, including natively as a PDF file.

Other Datwatch products include Datawatch Enteprise solutions, VisuaQSM, Visual ASP, VorteXML, etc. Datawatch products are used in more than 20,000 companies, institutions and government agencies worldwide....


Do your DD