In a slow economic environment, companies like ConAgra (NYSE:CAG) tend to perform quite well. Yet this year, the shares are up only about 2%. The issue? Well, a big culprit is commodity inflation. For example, in ConAgra’s latest earnings report, there was a 42% drop in earnings — primarily because of the margin squeeze from raw materials.
Of course, ConAgra is not alone. Other companies — including Kellogg (NYSE:K), Kraft (NYSE:KFT) and General Mills (NYSE:GIS) — are having difficulties, too.
It looks like commodity inflation is not a short-term trend. After all, it is getting tougher to extract natural resources, and China and India continue to provide substantial demand.
As a result, companies are looking for innovative ways to deal with inflation pressures, such as by using pricing software. And one of the top operators in the business is PROS Holdings (NYSE:PRO).
Founded in the mid-1980s, the company has developed sophisticated algorithms, which are based on operations research, statistics and forecasting techniques. The software also leverages data from corporate information systems.
Once a PROS system is installed, it provides a more scientific approach to pricing. For example, it will identify detrimental actions — such as unnecessary discounts and rebates — as well as opportunities to boost profitability. In today’s markets, getting even a small improvement in margins can be a big deal.
So it should be no surprise that PROS is gaining traction with customers. In the latest quarter, the company boosted revenues by 33% to $23.8 million and registered a profit of $1.4 million. As of now, PROS has more than 150 customers across 50 countries.
Actually, PROS has enjoyed plenty of momentum with its cloud-based offerings, and the company is making inroads in emerging markets, including in Asia. At the same time, PROS has been aggressively forging partnerships, such as with Deloitte Consulting and L&T Infotech.
With a market cap of $612 million, PROS still is fairly small. But investors are starting to take notice. During the past year, shares have increased a sizzling 56%.
And in light of the company’s strong platform and positive long-term industry trends, it’s reasonable to assume the momentum will continue. Interestingly enough, PROS also could be an attractive buyout candidate for a major software operator like Oracle (NASDAQ:ORCL) or IBM (NYSE:IBM). These companies understand that pricing software should be a nice growth opportunity for the long haul.
Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
