Innodata Isogen, Inc. (NASDAQ:INOD)

This comapany offers a quality service but until recently they just couldn't execute on the sales front. They underwent major structural revisions to thier sales and marketing organisation in late 2006 and H1'07. The stock price had been pummelled as they kept most of their production personnel during this time even though they weren't being fully utilized. The sales changes are now starting to be effective. Revenues are growing rapidly, margins are improving as utitlization increases leading to rapidly growing , but admittedly still small profits. Furthermore they are rapidly expanding their footprint in the Knowledge Process Outsourcing market, which has the advantages of hire margins and higher switching costs than simple business processing outsourcing that was their main staple in the previous years. Management has said that any addition Q4 revenue above and beyond the 18m from the Q3 level will have an operating margin of 40%.

The main risks with INOD are that it does a lot of contract work, and sometimes big contracts expire without a replacement order in the pipe line. Sometimes contracts are even cut short. This has been a problem in the past. Other worries are that the falling dollar will result in higher offshore labor costs, thus eroding margins. INOD has hedged this for Q4, but after that they need to deal with whatever comes. Finally, this stock is extremely thinly traded. Be carefull when placing a stop loss order. If the volume is large enough, you might trigger an additional 10% drop while trying to unload the shares. The same goes for Market buy orders.