Does NIC's Trust Bust Make the Stock a Must?

NIC, Inc. (EGOV) (7.72, 481mm), a member of my watchlist, first caught my attention in late 2007 on a screen for high ROIC companies with strong balance sheets and good price and fundamental momentum.  Looking at the chart, it seemed as though it was about to take out a multiyear high, which it subsequently did. 

Unfortunately, the CEO quit (and later left his Board Chairman position too), and the stock got slammed.  It was working its way back when news Monday night resulted in a sharp sell-off yesterday.  A trust that held 34% of the stock has been dissolved, leaving the owners of the trust (142 people who were original investors), who have received the shares via distribution, free to sell the stock.  I would have to guess that this has something to do with the likelihood of taxes going up in 2009, but the press release was very vague.  Perhaps the trust was set to dissolve at its 10-year anniversary.  In any event, the stock pulled back to support and is still outperforming the S&P 500 thus far this year.

For those not familiar with the company, it operates portals on an outsourced basis for primarily state and local governments (2900 clients in 21 states).  In most cases, it gets a cut of transaction revenue (convenience fee) and the states, which are revenue-challenged these days, have no up-front cost.  Talk about a great business for tough times - recurring revenue and potential opportunities for states who want to make it easier to get money out of their citizens. 

Half of their business is related to motor vehicle records, which is a slower growing area, but the company has many other faster-growing applications.  They presented recently at a conference - you can listen to the webcast.  While the PE is high at 36X forward earnings, the company could see earnings expand dramatically with a big contract win.  Top-line growth has been 20% roughly.  The balance sheet is very clean, with no debt and a chunk of cash.  Just three analysts cover the company.  I plan to do some more work on this one, as it might make a good addition to the Top 20 Model Portfolio.

By the way, NIC stands for "National Information Consortium."

Disclosure:  None.