A Common Kind of Israeli Magic

Who is she?

I've been following Magic (MGIC) shares for nearly three months, trying to understand the reasons behind its incredible surge in the markets.

About a week ago, an American investor commented in a business forum the following: "I bought it. Now someone please tell me what do they do?" I laughed for few seconds, and then I tried to answer the investor’s question and came up with some surprising answers.

Magic Software Enterprises Ltd.

Its head offices are located in Or-Yehuda which is about a 20 minutes drive from central Tel-Aviv its US offices are in Laguna Hills California. The company has offices in the United Kingdom, the Netherlands, Japan, India, France and Hungary. It keeps expanding its business all over the world with its proven products.

The company is traded on the NASDAQ under the symbol MGIC. It's a global provider of application platforms and business integration solutions. The company's business technology gives partners and customers the ability to efficiently build, deploy, and integrate IT applications.

Leading products

The company's website emphasizing its major software products: "Magic is offering the following products to its customers: uniPaaS is Magic Software’s proven application platform for client server, RIA, mobile and SaaS offerings, and is the next generation of the company's award-winning eDeveloper series. UniPaaS maximizes business productivity by reducing the complexity of application development and deployment. Featuring a ready-made business application engine, uniPaaS simplifies the code-writing process so businesses can create and deploy their IT applications faster, using fewer resources.

UniPaaS applications typically have fewer coding mistakes, undergo more thorough prototyping, benefit from greater business side input and optimization, and can be easily adapted to changing business needs".

The share

Magic has been trading on the NASDAQ since the early 1990s. During the "Year 2000 Bubble" its share reached a magnificent peak of over $25. Then came the big crash, and like many other companies in the technological sectors, Magic was down on its knees.

In the beginning of 2010 you could buy Magic's shares for less than $2. In December 2010, this reality has changed and the share price is now nearly $8. The share surged by 400 per cent in only 6 months.

True or false magic?

Let's ask ourselves whether the recent surge in Magic shares is another high-tech bubble, or is it because of real figures?

The company has reported that it’s expanding its business to the public and financial sector in South-Africa. During the first nine months of 2010 the revenues increased by 56 per cent to $63.6 million. The profit surged by 111 per cent and the company is holding cash and cash value assets of $26 million. The market capacity of the company is $252 million. With the current P/E (Price-Earning Ratio) of 26, the value of $8 per share may not be the highest peak in the near future.

Based on the above, it seems that this Magic is for real. No smoke and mirrors. Just pure Israeli wizardry.

This article does not recommend investing in the capital market.