Soros puzzles analysts, investors with cloud investment

Analysts and investors have never disagreed more about what price to pay for shares in ClickSoftware Technologies Ltd. (CKSW), the Israeli developer whose largest stockholder is billionaire George Soros.

ClickSoftware, which makes computer programs to manage workforces, reached a five-month low on June 4 and has plunged 25 percent to $7.60 this quarter, the second-worst performance on the Bloomberg Israel-US Equity Index. Still, analysts maintain the shares will climb to an average price of $13.33 in the next 12 months. That marks the biggest difference on record, according to Bloomberg compiled data going back to 2007.

While the Nasdaq Composite Index (CCMP) has rebounded from its selloff earlier this year, small-capitalization software companies like ClickSoftware that are transitioning their business to cloud computing have missed the recovery rally. Investors dumped the stock even after the company boosted its 2014 revenue forecast, citing increased sales to cloud customers.

The company “was a bystander getting hit by the market accident we saw,” Shaul Eyal, an analyst at Oppenheimer & Co., said by phone from Tel Aviv on June 27. “I’m approaching the quarter with a positive bias, I’m not expecting any major negative surprises.”

Eyal, one of four analysts covering the stock, has a buy rating on the shares and raised his price target to $13 after the first-quarter earnings report. ClickSoftware’s stock has risen 1.3 percent during the first half of the year, lagging the 5.5 percent gain on the Bloomberg index of the most-traded Israeli shares.

Cloud computing allows information to be stored online instead of on a specific computer. Moving to the cloud means forgoing upfront contracts with lofty profit margins in favor of software-as-a-service (SaaS) products that pay off monthly and can be canceled if customers aren’t satisfied.

Soros Fund Management owned a 9.9 percent stake in ClickSoftware as of March 31, according to regulatory filing. With a net worth of $26.4 billion, Soros is the 23rd-richest person in the world, according to the Bloomberg Billionaires Index. Michael Vachon, a New York-based spokesman for the fund, didn’t respond to an e-mailed request for comment.

ClickSoftware’s 25 percent drop in the second quarter compares with an average decline of 3.4 percent on a total return basis among information technology and software industry peers.

Still, three of the four analysts covering the company maintain a buy rating on the stock.

“We too are perplexed by the decline in the stock, and can only point to the overall weakness in SaaS-related stocks over this same period as a possible explanation,” Matt Blazei, an analyst at Lake Street Capital Markets LLC in San Francisco says.