Some of the issues that I think are prevalent in Kelton tech which the management needs to address for better valuation:
1. Low Operating Margins
One of the lowest in the industry, 600 of the 1600 employees are based in the US, vs around 10% in other IT companies.
2. Servicing (recurring) is only 10% of the revenue, rest is implementation (non recurring)
3. No pricing power, since they offer generic non-specialized solutions, they don’t have any pricing power
4. Business was severely affected by Covid, another wave will be detrimental.
Some of the triggers for growth are:
1. Improvement in margins and quicker movement of US employees to India.
2. AI / ML / Blockchain verticals takeoff
3. Growth driven by the new European business
Overall, the management seems genuine and the stock is severely undervalued (PE less than 10, trading close to book value)
