Trading Ideas: Saba Software Inc. (SABA)

Saba Software Inc. (SABA)
10/23/2009 Closing Price: $4.23
Wall Street’s 1 year price target: $6.13

We believe SABA could possibly double in price within the next 12-to-24 months. Saba is the premier global provider of strategic human capital management (HCM) software and services. Saba ’s people management solutions are used by more than 1,300 organizations and over 17 million end users worldwide. Saba ’s solutions increase organizational performance by aligning workforce goals with organizational strategy; developing, managing and rewarding their people; and improving collaboration.

We believe the technology company is well positioned to take advantage of worldwide shortage of skilled workers:

Consider these facts:

According to America’s Career Resource Network:

• The number of people 55 and over will increase sharply by 2050, but their labor force participation will increase only slightly. This means the overall labor force will shrink.
• By 2010, there will be a shortage of nearly 8 million workers. The U.S. will need to import skilled workers from abroad.
• A National Association of Manufacturers’ survey found that eighty percent of responding businesses said they had a “moderate to serious” shortage of qualified job candidates.
• By 2010, more than 42% of all jobs in the economy will require a vocational certificate, associate’s degree, bachelor’s degree or higher.
• 65% of the fastest growing occupations in the US require some form of postsecondary education (associates’ degree, vocational certificate, bachelors’ degree)
• By 2014, the workforce will have openings for 9 million more degree holders than will be available. There will be 3 million surplus openings for 2-year degree holders, 4 million for 4-year degree holders, and 2 million for advanced degree holders.
• 39% of the workforce is in low-level jobs. These jobs are disappearing. This means those workers will need remedial education and training to get the more skilled jobs that will make up an increasing share of U.S. jobs overall.

The Wall Street Analysts following SABA are expecting at least 20% growth in earnings per year for the next 5 years. And yet the investors don’t have to hold their noses when buying SABA shares. Despite the 20% growth projections, the stock trades with a forward PE ratio of just 11.75. Anything below a 1-to-1 ratio is considered by many Wall Street gurus as a value.

The people management company also trades with a PEG Ratio of just .75. Just like golf, the lower the score the better. According to a study done by Motley Fool, companies with PEG Ratio’s under 1 outperform the market more than 90% of the time during a three year period; again a value. Another metric we find value in is SABA’s price to sales ratio. When measured versus it peers, SABA trades at 32% discount.

SABA point & figure chart says the timing for SABA might be just right. According to StockCharts.com point and figure analysis, SABA has a bullish price objective of $11.00.

Overall, we see believe SABA shares offer long-term investors Growth at Reasonable Price; aka GARP. These shares are appropriate for investors that can stomach high price volatility for the potential of triple digit returns.