Having secured a dominant share in Canada, Calgary-based Solium Capital Inc. is now trying to convince the global market that its software is superior.
Solium is at a crucial phase of an international push, targeting bigger game with its cloud-based product, which helps companies manage their stock-based incentive programs.
New investors in the small-cap stock should expect a stretch of earnings volatility, beyond which lies much potential growth.
"What people don't realize is that this is a world-class software company," said Jason Donville, president of Donville Kent Asset Management, which owns shares of Solium. "I don't think anyone can touch them in terms of the quality of their product."
Solium's flagship application, Shareworks, enables the management of stock option and stock purchase programs. With about two-thirds of revenue coming from annual subscription fees, recurring revenue is high, lending some predictability to earnings.
Meanwhile, the platform allows plan participants to execute trades in real time, adding another stream of revenue from transaction fees.
Once marketed primarily to energy companies, Solium's product has long outgrown the oil patch. With about a 75-per-cent market share among TSX 100 companies, the company is increasingly seeking growth outside of Canada.
"Solium, we believe, is at the foothills of a large, global opportunity," Canaccord Genuity analyst Robert Young said in a recent note. "We believe Solium is in a unique competitive position with the only global [software as a service] solution for equity administration on a single platform."
Solium has its competitors, some of which provide services from the cloud, but none have a single global platform, Mr. Young said. Having localized offerings can add time and complexity, particularly for multinationals having to combine data from multiple systems country by country, he said.
But even if Solium's product is better, the "stickiness" of the business makes it difficult to steal away business from competitors. Building international market share has been slow, but steady, Mr. Donville said.
The primary focus of the expansion has been Australia, where the company said it finds itself "swamped" by opportunities.
In June, Solium announced a new contract with mining giant BHP Billiton Ltd., one of the Australia's biggest companies, and previously a client of Solium's competitor Computershare Ltd. "BHP Billiton is a large, global and complex organization and an excellent reference customer to showcase Solium's capabilities," Mr. Young said.
In Britain, meanwhile, Solium continues to benefit from a white-label partnership with Barclays. And in the United States, Solium recently added SpaceX to its client list. "SpaceX was a completely organic win on the back of an increasing profile," said Mr. Young, who rates Solium stock a "buy" at a target price of $9. The other analysts covering the stock rate have an average target of $9.21, representing a 29-per-cent premium over Wednesday's closing price of $7.13.
Still, the company remains little known outside of Canada.
And spending the money required to raise that global profile and secure future growth is weighing on financial results in the interim.
"You've got to be prepared to live with the lumpiness of their earnings profile," Mr. Donville said.
In November, the company reported third-quarter earnings that fell well short of analyst expectations. Investors might expect more of the same in near-term profits.
"We think the risks are heightened right now," said Ryan Modesto, managing partner at 5i Research. "You need to watch over the next two to three quarters to see if growth starts to come back."
But Mr. Donville said he sees any material pullback as a good opportunity to buy the dip on a high-growth stock.
"If you take a five-year view, any time this stock checks back 15 or 20 per cent, that's the time to buy it."