Don't Let Go of Lawson

At a time when software giants like Microsoft (MSFT Quote), Oracle (ORCL Quote) and recently acquired Siebel (SEBL Quote) are struggling to deliver sales and earnings growth, smaller players like Lawson (LWSN Quote) are shining.

Lawson, which we featured Sept. 20 as part of a broader recommendation of low-priced software stocks, has seen its shares jump some 10% in value, to $6.82, following a strong earnings report Sept. 29 for the fiscal first quarter ended in August. Revenue grew 6.2%, marking its first quarter of annual revenue growth in the last year, and unlike many of its larger brethren, Lawson is confident in its future and issued sales guidance ahead of Street estimates.

Lawson first appeared on our radar screen in September when we were looking for inexpensive software stocks that could be possible turnaround plays. Lawson was an ideal candidate from this search: it had poor earnings performance in the past year, but it appeared to be on the mend.

But we didn't initiate a position in the model portfolio because we had more than 20 stocks in the model portfolio at the time, and that limited the amount of cash we had for new names. However, as part of our service, we routinely note possible new stocks to readers, and we want to reiterate that our thesis in Lawson remains intact, despite its recent run-up.

Lawson sells enterprise resource planning (ERP) software that enables different departments within an organization to communicate and share data effectively. For the fiscal first quarter ended in August, Lawson reported sales of $87.9 million and earnings per share of 8 cents. The Street was expecting sales of $84 million and EPS of 4 cents, and these strong results confirm our theory that a turnaround is indeed underway at Lawson.