Magic Software Enterprises Ltd. (NASDAQ:MGIC)

CAPS Rating: 4 out of 5

Develops, markets and supports Magic software development and deployment technology and business solutions. Its technology enables enterprises to speed the process of building and deploying business software applications.


Player Avatar vanamonde (99.97) Submitted: 11/28/2010 3:43:34 PM : Underperform Start Price: $6.95 MGIC Score: +16.79

MGIC is 58.1% owned by another Israeli company called Formula Systems (FORTY), which in turn was until recently about 50% owned by yet another Israeli company called Emblaze Ltd (listed on LSE). Emblaze sold its stake in Formula to a large Polish developer for $139m (the deal closed just a few days ago) and FORTY now has a market cap of $222m.

FORTY also owns 73,1% of Sapiens (SPNS), a company with a market cap of $53m and a controlling 50.03% of Matrix, which is listed on TASE and has a market cap of about $310m. While the other three stocks have behaved reasonably, MGIC has shot up some 200% in a month for a cap of $215m.

I am not enough of an International Man of Mystery to make use of the arbitrage here over several exchanges, but I did short Magic. This hype will pass.

Report this Post 8 Replies
Member Avatar EnigmaDude (87.06) Submitted: 11/29/2010 11:39:14 AM
Recs: 0

Although I respect your opinion and you may be right on with your analysis, I think you are missing some salient points here. First of all, both Magic and Sapiens are profitable and growing and have been flying under the radar of most investors. Now that Magic has broken the $5 mark, they are likely to show up on stock screens of larger investors. Also, with Formula Systems recent sale there are some additional synergies that can now occur. Magic has no debt and was recently added to the Visionaries quadrant of a Gartner report that highlights new enterprise software solutions. This is where SAP got its start, for example. In my opinion, Magic is small but growing and gaining market share in an expanding growth market that is global in scope. It may retreat in the short term but should be stongly considered as a long-term investment for many investors.

Member Avatar vanamonde (99.97) Submitted: 11/29/2010 2:16:31 PM
Recs: 0

Mmm...yes, I actually agree that in the LONG run MGIC might see higher valuation, but it is overbought right now and I see an opportunity to short. And if you want to go or stay long, I would recommend waiting/selling for a better entry point.

I am not qualified to thoroughly assess MGIC's business. To me it seems that they are doing what they have been doing for a couple of years (such as uniPaaS), with incremental improvements, but maybe I am wrong. I do know, though, that "cloud computing" is the new solar, dry bulk, China, algae, nano or whatever other bubble and if everyone is in it, it is time to start heading for the door.

Also, I am not sure I can agree with the argument that the recent jump and volume have been due to a sudden increased exposure to investors. We have been getting stunning 40-100x 6-month average volume in the past two weeks. This is not big funds getting in, this is automated high frequency trading running after momentum, plain and simple. If we get enough price movement on quieter days, we might see another leg up, but after that it shall probably correct pretty hard.

Member Avatar EnigmaDude (87.06) Submitted: 12/1/2010 3:26:27 PM
Recs: 0

You are probably quite correct on this call! As of today the stock has already dropped back below $6 (while the overall market is up 2%). I sold my shares for about $6.70 and will look to get back in if the price drops below $4. Thanks for your comments.

Member Avatar vanamonde (99.97) Submitted: 12/1/2010 3:53:23 PM
Recs: 0

$4 sounds reasonable, the financials look quite decent and could easily support that. Cheers.

Member Avatar bigmigual (< 20) Submitted: 12/17/2010 10:54:18 AM
Recs: 0

I think the pull back will be just before the first of the year. I started @ 3.36 and think I will get out @ 8.50. Company selling its product at light speed.

Member Avatar TraderLantern1 (98.26) Submitted: 12/19/2010 8:09:58 PM
Recs: 1

"Open Sky", February 2011. $10 is coming.

Member Avatar coleyman (< 20) Submitted: 1/17/2011 12:40:14 AM
Recs: 0

This company is part of the cloud software market that is expanding in a very large global market. The timing and hype are very good. With the institutional investors aquiring shares, the next six months should see a really good run. The high dividend rate insured everyone held on for a long period of time. The whole stock is staged for a six month run especially with the non-stop announcements of new customers. Once you land the first few big fish, the other large customers are more comfortable joining the team.

Member Avatar EnigmaDude (87.06) Submitted: 8/25/2011 2:49:01 PM
Recs: 0

You were right again, vanamonde! The stock is trading for about $4 today. Good call.

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