Stock To Study

Pries Capital – An Investment Firm rates QUALYS INC (QLYS) a BUY.

By the Numbers

Qualys, Inc.
Information Technology
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This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.


Qualys, Inc. is a provider of cloud-based security and compliance solutions. The Company’s solutions enable organizations to identify security risks to their information technology (IT) infrastructures, help protect their IT systems and applications from cyber-attacks. Its suite of security and compliance solutions delivered on its Qualys Cloud Platform enables its customers to identify their IT assets, collect and analyze IT security data, discover and prioritize vulnerabilities, recommend remediation actions and verify the implementation of such actions. Its Qualys Cloud Platform consists of a suite of IT security and compliance solutions. The Qualys Cloud Suite includes solutions, such as Vulnerability Management, Continuous Monitoring, Cloud Agent, AssetView, ThreatPROTECT, Policy Compliance, Payment Card Industry Compliance, Security Assessment Questionnaire, Web Application Scanning and Web Application Firewall. It provides its solutions through a software-as-a-service model.


The data shows strong and consistent growth of sales and EPS. Historical growth exceeds the 12% growth we expect for a small size company. Percent pre-tax profit on sales is steady over the last 5 years, averaging 18.4%. Percent return on equity has increased over the last 4 years to 18.2% in 2019. Qualys carries a low debt to capital of 11.8% in 2019 against the industry average of 44.7%, implying that there has been very successful management of debt levels.

The company markets and sells its IT security and compliance solutions to customers directly through its sales teams, as well as indirectly through its network of channel partners, such as security consulting organizations, managed service providers and resellers, and consulting firms. It serves enterprises, government entities, and small and medium-sized businesses in various industries, including education, financial services, government, healthcare, insurance, manufacturing, media, retail, technology, and utilities.


Our forecasted growth rate for sales is 11.1%, some analysts’ forecasts for sales growth range from 11% to about 16%, and we selected a growth rate in the low of this range to be conservative. The company has grown sales and net income during the past quarter when compared with the same quarter a year ago, however, it was unable to keep up with the growth of the average competitor within its subsector. The selected rate is supported by the historical growth and the various analyst estimates found in the research process.

Our forecasted growth rate for earnings per share is 17.8%, a little conservative against the current 22.6%, but better than the five-year average sitting at 15.5%. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue.

Our forecasted high P/E is 52.4 below the average high P/E of 67.7. We reviewed the five-year history and took out 2015 as an outlier. We selected 52.4 as it has just been the average price earnings ratio and given the backdrop of the most recent macro conditions, we have been lowering future growth expectations across the board.

Our forecasted low P/E is 37.1, right in line with the average low P/E for the last four-years. Similarly, to the forecasted high P/E, we took out 2015 as an outlier in the metrics. Going back to our judgments into the future, as we have been lowering future growth expectations across the board, we do not believe the underline is deteriorating.

Our forecasted low price is $62.30. This value was selected from the 4B(a) calculation (Average low P/E times Low EPS) as the forecasted low price. The low EPS is adjusted to the most recent 4 quarters of EPS. The calculated value of $62.30 provides a reasonable margin of safety below the current price ($71.35).


  • At the current price, the stock is a BUY
  • At the current price, the upside-downside ratio is 14.2:1
  • Compound Annual Return (using forecast high P/E) is 22.8%


This report is for information purposes only and should not be considered a solicitation to buy or sell any security. The final recommendation is always to do your own research, complete your own stock to study and make sure you are comfortable with your forward-looking forecasts before making any buy or sell decisions. Neither Pries Capital nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of Pries Capital, Inc. Copyright(c) 2011-2020. All rights reserved.

With that said, “We have great challenges & great opportunities, and with our help we’ll meet them together!” – Jason Pries

Keep an Eye on Inflation

In October 1968, with the United States fighting wars against poverty at home and perceived communist threats abroad, the S&P 500 Index climbed on the back of an overheated economy to record highs in both real and nominal terms. The boom times were not to last. Adjusted for inflation, stocks would not return to their late 1968 levels until mid-1992 (chart data). In nominal terms, full recovery took about seven years from a January 1973 peak.

I offer this cautionary tale by way of explaining why recent decades have differed so dramatically for equity market investors from those generally unprofitable years a generation or two ago. Unlike current conditions, what characterized the period beginning in the late 1960’s were cost of living increases that compelled President Richard Nixon to impose wage and price controls and the Federal Reserve to raise interest rates to levels that today would seem unfathomable.

At the vanguard of the Fed’s anti-inflation effort was the late Paul Volcker, the central bank’s chairman from 1979-1987. Volcker allowed benchmark rates to reach nearly 20%, but his tough love approach to price stability is widely credited with subduing inflationary expectations and thus sowing the seeds for the long economic expansions and bull markets to follow.

So, while recessions are the most obvious and direct causes of severe market declines, it’s rising inflation that triggers economic downturns by motivating the Fed to take away the monetary punchbowl. Of course, recessions cause corporate profits to fall as well, but earnings are only half the story. The other half concerns the impact of rates on valuations.

Historically, the equity market’s price-earnings ratio has moved inversely to bond yields as money flowed out of stocks and into higher-yielding assets. Viewed another way, the equity market’s earnings yield – its P/E ratio expressed as a percent – closely tracked the yield on Treasury bonds. (A P/E ratio of 20 equals an earning yield of 5%, or 1.00/20=0.05)

Which brings our story to the outlook for stocks in the months ahead.

Among the enduring mysteries of what’s become the longest expansion on record is the breakdown in the relationship between unemployment and inflation, also known as the Phillips Curve. In the past, tight labor markets have fueled fast-rising wages and benefits, which in turn fed through to consumer prices and finally to higher interest rates. This time, not so much. Despite the lowest jobless rate since the boom days of the late 1960’s, inflation has consistently undershot the Fed’s 2% target, as measured by the central bank’s preferred metric, the Core Personal Consumption Expenditures Price Index. That’s allowed rates to stay low by historical standards, thus extending the bull market in stocks.

Some economists believe the recent failure of the Phillips Curve to explain inflation can be attributed to a changed definition of full employment while others think a myriad of complex global factors are at work.


What matters most for investors, however, is that inflation expectations remain anchored and that core inflation stays at or below the Fed’s 2% target. Until that changes, we aren’t likely to find the Fed’s fingerprints on whatever weapon eventually brings about the demise of the longest bull market in U.S. history.

Still interested in understanding more when it comes to inflation? If so, contact our firm at 843-999-1570 and someone will be able to explain more in depth of what you need to know when it comes to what’s ahead for stocks and inflation! With that said, “We have great challenges & great opportunities, and with our help we’ll meet them together!” – Jason Pries

Bonus websites of interest…

Classic Advice on When to Sell

I figured it seems fitting to write this article in the market environment in which we find ourselves today.

“If the job has been correctly done when a common stock is purchased, the time to sell it is — almost never.” — Philip A. Fisher, Common Stocks and Uncommon Profits, 1958

With the major market indices continuing to reach new highs, some investors are wondering if they should sell their stocks. After all, if prices are high & the holdings have been profitable, why not sell & take the gains?

On Wall Street, the preference to sell can be especially popular. Many brokerage & research firms publish price targets for stocks & recommend selling them once the target has been reached. Other firms routinely recommend moving to all-cash positions based on market, macroeconomic or geopolitical forecasts. Still others view stocks as little more than trading vehicles & move in/out many times over the course of a month, week, day or microsecond, as in the case of high-frequency traders.

At the other end of the spectrum are investors who never sell at all. In an article published in 1984, author Robert Kirby described a situation where his purchase recommendations were followed, but his sell recommendations were ignored. After many years, the result was an odd assortment of small holdings, several large holdings, & one huge holding of Haloid which later turned into a zillion shares of Xerox. Kirby, of course, had recommended that Haloid be sold.

In our investment club, our analytical work focuses on the underlying businesses of the stocks. We think of our club as part-owners of those businesses &, as long-term investors, our club owns the shares for as long as the company’s management team is doing its job to increase shareholder value. Given enough time, a company’s share price is likely to increase along with growth in its revenues, earnings, & dividends.

However, companies can change & industries evolve, & management teams can lose their way. Sometimes better opportunities develop elsewhere.

“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” — Benjamin Graham, The Intelligent Investor, 1949


At the end of the day, investors are well-served if the job of analyzing a company includes a thorough review of its underlying business & fundamental characteristics — this holds true for selling & buying. If the company selected for purchase passes criteria on all counts, it could be a long time before it needs to be sold. And selling a high-quality, adeptly managed company just to take profits rarely is a viable long-term investment strategy.

Still interested in understanding more when it comes to selling a stock investment? If so, contact our Firm at 843-945-0051 and someone will be able to explain more in depth of what you need to know when it comes to stock market investing! With that said, “We have great challenges & great opportunities, and with our help we’ll meet them together!” – Jason Pries