This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

January 22, 2010 - Agilysis, Inc. (AGYS-NASDAQ) together with its subsidiaries, provides information technology (IT) solutions to corporate and public-sector customers primarily in North America. The company operates in three segments: Hospitality Solutions Group (HSG), Retail Solutions Group (RSG), and Technology Solutions Group (TSG).

The RSG segment provides customized pricing, inventory, and customer relationship management systems. It also provides implementation plans and supplies the package of hardware needed to operate the systems, including servers, receipt printers, point-of-sale terminals, and wireless devices for in-store use by the retailer's store associates.

The TSG segment offers enterprise IT solutions, including enterprise architecture, infrastructure optimization, storage and resource management, identity management, and business continuity. This segment provides its solutions to education, finance, government, healthcare, and telecommunications industries. The company was founded in 1963 and is headquartered in Solon, Ohio.

This used to be known as Pioneer-Standard Elecrtonics. In 2003, it changed over. At the time, the Chairman, Arthur Rhein said: "Our company is focused solely on enterprise computer solutions. The proposed new name will more clearly differentiate our organization within the industry, as well as in the eyes of our customers, suppliers and investors." Pioneer-Standard sold its components distribution business to Arrow Electronics in January, 2003, for $285 million and plans to focus on its enterprise computer distribution business and its single-tier solution provider business, the company said.

So there was a shift in focus in 2003. Initially, investors liked it, sending the stock from $7.10 in that year to a high of $23.90 in 2007. Then things turned for the worse. The stock stopped going down in late 2008 when it hit $1.90 a share. Now it's rallied and touched $9.95 this month. Will it recapture old highs, then move to new ones?

Earnings are a big part of the story (aren't they always?). They've been erratic to put it kindly. They improved nicely from 2003 to 2005, going from 43 cents a share to $1.09. Then things changed. Earnings went negative in one year, going to minus 38 cents a share, revived in 2007 to show 13 cents a share, only to plunge to a minus $1.06 in 2008. Analysts think the numbers will be positive for 2009, showing 5 cents a share (fiscal year ends in March). In 2010, the 2 analysts who follow the company have 83 cents as the consensus but the range is between 62 cents and $1.03. Obviously this is a tough stock to predict earnings for.

Revenues followed a similar pattern, going from $475 million in 2006 to $731 million in 2008. This year, they will be lower, at $643 million. But next year, epxectations are for an almost 50% gain to $951 million.

Part of the rosy outlook comes from results of the September quarter. They were lower than the previous year's total but up 20% from the June period. Sales increases showed in hardware, software, and services. Cost cutting was implemented throughout the company. Earnings per share were 12 cents, a full 163% higher than analysts' expectations. That was the first positive quarterly earnings after two negative quarters.

Management stated that its pipeline for new orders is showing signs of recovery, that year over year declines in sales is moderating, and that the fourth quarter total sales should show a notable increase. Those cost cuttings continue with management claiming that much of the benefit will be apparent in the second half of the fiscal year.

Any investor considering owning AGYS has to believe the U.S. economy will have a better 2010, that the recovery has begun. AGYS is all about serving business with IT, hardware and software and services. If the economy does recover, businesses will need to update their IT products to keep their goods and services flowing smoothly. If there's an unexpected slowdown in the recovery or another exogenous factor such as a spike in oil prices or a terrorist attack, then look for AGYS to reflect that as well with lower sales and ultimately lower (maybe even negative) earnings once again. This is a company with low operating margins so it's very sensitive to sales volumes.

More numbers: Price to sales ratio is .32. Price to book is 1.15. Book value is $7.99. Operating margin, profit margin, return on assets and return on equity were all negative for the last 12 months. There is no debt on the books. There is $48.2 million in cash or $2.09 per share. Current ratio is 1.57. Beta is 2.34 so volatility is part of owning this stock. The 52-week low as in February, 2009 at $3.17. The high was this month at $9.95. Insiders own 32.4% of the stock. Institutions have 57%. The annual dividend of 12 cents a share was stopped in June of 2009.

This is an interesting play on the economy. Aggressive investors will want to dig deeper to see if its right for them. The high beta tells a story of its volatility that shouldn't be ignored. And those negative earnings can come quickly since margins are narrow. With cost cutting, they should improve.

- Company Web site: www.agilysys.com

 Ted Allrich