Shares in insurance software developer FINEOS Corporation Holdings plc (ASX: FCL) have soared almost 90% higher so far this year. Despite the market challenges posed by the COVID-19 pandemic, FINEOS has managed to achieve a number of impressive milestones in 2020, including signing the largest insurance company in the United States and recently acquiring software company Limelight Health, Inc.
FINEOS develops a suite of software for the life, accident and health insurance industries. Its AdminSuite platform is a centralised system that supports billing, claims and payments. Its customer-centric software automates and streamlines processes for insurance providers and can replace legacy insurance administration platforms.
In its FY20 results, Dublin-based FINEOS beat its own revenue targets, reporting growth in revenues of close to 40% year on year. Of the 87.8 million euros in total revenues in FY20, 27 million euros came from recurring subscriptions, while 58.3 million euros was services revenue from new clients and accelerated implementation and upgrades for existing clients. And despite the ongoing disruptions from COVID-19, the company is still optimistic for FY21, forecasting top line revenue growth of 20%, underpinned by 30% growth in subscription revenues.
The Limelight acquisition could help to rapidly accelerate the company’s growth forecasts. Silicon Valley-based Limelight Health is a leading provider of software for the United States insurance industry. The acquisition helps boost FINEOS’ presence in the US market, and it means that FINEOS can now leverage Limelight’s experienced US-based sales and marketing team to increase market penetration and brand recognition.
This also comes on the heels of FINEOS’ February announcement that it had signed the Prudential Insurance Company of America, the largest insurance company in the US. FINEOS is clearly sending the signal to the market that it views a US expansion as a key priority over the next 12 months.
Should you invest?
Along with other up-and-coming tech companies like Nitro Software Ltd (ASX: NTO), Bigtincan Holdings Ltd (ASX: BTH) and Megaport Ltd (ASX: MP1), I believe FINEOS Corporation is cementing itself as part of a new generation of young companies that could become the next WAAAX shares. Despite the upheaval caused by the pandemic, these junior companies have all found ways to thrive.
With a market capitalisation of a little over $1.5 billion, FINEOS has grown into a solid mid-cap stock. It is generating consistent subscription revenues and has a portfolio of top tier insurance companies as clients. It is taking on additional risk through a US expansion, however this is already showing results through key client wins. Plus, it has shown an appetite for strategic acquisitions that could complement its business model.
Despite challenging market conditions, I believe this company has laid a solid foundation for future growth. The FINEOS share price will be an exciting one to watch over the next 12 months.
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Rhys Brock owns shares of FINEOS Holdings plc, BIGTINCAN FPO, MEGAPORT FPO, and Nitro Software Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO and MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia has recommended BIGTINCAN FPO, FINEOS Holdings plc, MEGAPORT FPO, and Nitro Software Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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