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The Sterling Small Cap. Review for the week of September 22nd, 2008 is now available. In this edition of the Small Cap. Review we take a look at a growing company that is trading with a P/E ratio of 2.33 and at 1/3 of book value.

Sterling Investment Services has recently initiated research coverage on WWA Group, Inc. We feel that this company has excellent long term potential and is worth taking a serious look at. Additional information on WWA Group, Inc. (OTC BB: WWAG) can be found (here)

In our upcoming edition of the Sterling Weekly we are going to take a look at the short selling issues and how we would change the regulations to protect shareholders. Please feel free to sign up to receive this edition of the Sterling Weekly when it is available.

Hottest Deals of the Week

Sterling Small Cap Review for September 22nd, 2008

Position Statement: In our Small Cap Review newsletter we attempt to identify small and micro cap companies that we feel are undervalued and have a good chance of moving higher. When we write about a company, please do not assume that it is a buy recommendation. We will have stocks in the “watch” category,  the “buy” category, the “hold"   category, the “sell” category and the “you have got to be kidding” category… this is reserved for companies that we have identified as having a highly unlikely story, or, has shown a propensity to stretch the truth to a state hitherto unknown to mankind. The Sterling Small Cap Review is distributed via. an "opt-in" email distribution and through our website

Today’s Comments: This week, we look at an extremely undervalued company that have fallen below book value. We are initiating coverage on IBSG International, Inc. "IBSN" with a BUY rating.

Recommendation: Buy

IBSG International (IBIN)

Company: IBSG International, Inc. Symbol: 'IBIN' Closing Price: $1.00
Web Site: YH: $2.30 YL: $0.80 Forecasted EPS: $0.50
Shares Outstanding: 11.96 Million EPS: $0.43 P/E: 2.33 Market Cap.: $11.96 Million
Dividend: N/A Yield: N/A Average Daily Trading Volume: 13,000 Shares
Company Description: IBSG International, Inc., through its subsidiaries, provides various software solutions and services primarily in the United States. It offers BizWorld Pro, an e-commerce platform to enhance the operating efficiency for state small business development centers, business associations, and various corporations through the licensing of its turnkey digital service center software, which provides a range of digital budgetary, administrative, and commercial services; and Secure Blue Pro, a Sarbanes-Oxley compliance and security software suite for small and mid cap public companies, as well as for private companies that work with public companies. The company also provides software development, systems support, maintenance, and data storage services, as well as information technology consultancy services for multi-national corporations. IBSG International is based in Celebration, Florida.
Recent News: 09-09 IBSG International Offers Year-End 2008 Guidance. Business Wire (Tues. Sept. 9th)
  08-19 IBSG International's 2Q revenue jumps 45%. (Tues. Aug. 19)
07-30 IBSG International CEO Briefs Invitations-Only US Department of State, Department of Commerce African Growth and Opportunity Act Forum. Business Wire (wed. July 30).

Our Analysis: There are times when the phrase “too good to be true” is not true, and you have really found something of value. In the case of IBSG International, It is too good, AND true. After scouring the microcap universe for the most undervalued situation, we have finally found our best candidate yet. 

Who is IBSG and what do they do?
IBSG International, Inc. (IBSGI) is a holding company with four software subsidiaries: 1. Intelligent Business Systems Group, Inc. (IBSG), a provider of turn-key digital service center software; 2. Secure Blue, a Sarbanes-Oxley (SOX) and security software solution provider, 3. Intelligent Business Systems Development Inc. (IBSD), a software development, maintenance and data storage company and 4. IBSGI UK, LTD. (IBSGI UK), a consultant company focused on development of informational technology (IT) projects for multi-national corporations. IBSG offers BizWorld Pro, a copyrighted and trademarked e-commerce platform, as a solution to enhance the operating efficiency and create revenue for State Small Business Development Centers (or their profit making equivalents), business associations (e.g., Chambers of Commerce) and Fortune 1000 corporations through the licensing of its unique turnkey digital service center software. This software provides a broad range of digital budgetary, administrative and commercial services (B2B, e-commerce, government to business and enterprise business services) on a single platform.

The Fundamentals:

IBSG is growing revenues at an outstanding  51%  when comparing  6mo. 2008 to 6 mo. 2007.  The company recently announced  guidance for FY 2008 of $0.50 -0.60 eps , and revenue of  $18-22 million. That translates into  IBSG trading somewhere around 2x expected eps. Book value for IBSG is $2.60/sh, and cash is .617/sh. To see the full key statistics see:

There has got to be something wrong, right?
The biggest issue we see is that IBSG has issued over 2 million shares for services in 2008 as per the most recent 10-Q.  We view this to be a poor management decision since the value of the shares are so depressed, and paying in cash would have been a much preferable alternative, since that stock is usually sold into the market rather quickly, and leads to shareholder anger since  those shares diluted earnings by somewhere around $.06/share  for the year if the company's profit projections hold true.

There is a high accounts receivables number, which stands at $24 million, or about 1.2x  annual revenues. This is attributable to the fact that they sell to government agencies, and are notorious for paying slow, but they do pay.  That, and a whopping $500 loss last quarter for a stolen laptop.

The Bottom Line: We believe that IBSG should be at  trading much higher levels, and with some management discipline, we can see a reasonable valuation of 8- 10x earnings, but we believe that 6 x earnings is more reasonable until management stops issuing shares for services,  and  until they improve their listing to either the NASDAQ or the AMEX.

IBIN Chart


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Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: If you would like to contact us our fax # is (404)-816-8830 Email address is: Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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