iSoftStone Holdings Ltd: Small-Cap Leader in Cloud Computing Technology
iSoftStone Holdings Ltd: Small-Cap Leader in Cloud Computing Technology
Not many years ago, it was rare to hear of any Chinese products that could be classified as household brands in the United States. As China’s economy continues growing, while most western economies are struggling to achieve any meaningful growth, China’s cooperates are beginning to make footprints on the global scene. iSoftStone Holdings Ltd (NYSE: ISS) is one of the companies that represents China’s emerging corporate power status.
iSoftStone is a Chinese based IT services provider for mainland China and the company also has an emerging global reach. ISS provides integrated IT services and consulting and business outsourcing services. The business model focuses on key client industry verticals that include technology, banking and financial services, healthcare, transportation and the public sector.
Mergers and Partnerships
As part of measures to boost its profile in the IT sector in China, the company announced In December 2012, that it had gone into a joint venture with International Business Machines Corporation (NYSE: IBM) to implement an IBM China Central Cloud Computing Centre of Excellence. The company is also in a partnership with Chinese telecom giant Huawei (Shenzhen: 002502) to better serve the telecommunications and technology industry. These partnerships will allow for sharing of resources, technology transfer and personnel training
The joint ventures mean iSoftStone will, through collaboration with its new partners, enhance cloud computing services; an area in which it is already one of the leading companies in China. Located in one of the world’s largest mobile phone markets and with internet penetration rising, the company is well positioned to take advantage of these changing market dynamics to increase its footprint.
Betting on Future Growth
iSoftStone shares have remained relatively stable over the last 12 months. George Soros’ Quantum Fund lists iSoftStone as one of its top 5 favorite Chinese stocks. With China having the world’s largest Internet user population, pegged at 477 million, there is no reason not to doubt the company’s huge potential. However there are some underlying weaknesses that may continue to put some investors off. The company maintains profit margin of only7.6 percent. Another area of concern is in cash flow from operations, which is in the red zone. This means on a day-to-day basis, the company is burning more cash than it is receiving. In the long-term this will also affect any dividend payouts and future planned investments.
Investor’s positive rating of iSoftStone stock is largely a result of the company’s huge growth potential, especially in its areas of specialization such as cloud computing.
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While noting that this is a George Soros stock, I would be wary of the cash burn. How much cash do they have and how flexible is the company?
Cloud Computing is in itself, a budding industry. The partnership with IBM and Hauwei only cements the potential for growth
There is always a question that needs to be answered when a supposedly well-performing company has its stock “stable” over a 12-month period. I’m not always comfortable with such stocks, as I always view them as “people sitting on the fence”; they’re neither here (rising) nor there (falling). Such stocks, in my opinion, are most likely to go “there” (fall) whenever it suit them to move. I’m not taking anything away from its new deals, but the question remains: will its stock benefit?
Agreed. Usually a stock that sits dormant with little volatility, tends to generate limited returns.
Yet, we cannot discountenance the fact that it also has the probability to move up exponentially. It depends on how you see the glass: half full or half empty?
Recent performance isn’t that great but the cloud should be a big trend in 2013. I’m quite bullish on Chinese stocks anyway. One to watch.