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Tyler Tech Gains on Upgrades: Under the Radar

Stocks in this article: TYL DELL IBM

DALLAS ( TheStreet) -- Efficient government can sound like a contradiction in terms at times, but that's what Tyler Technologies' (TYL) automation systems aim to do. This niche has proven profitable for Tyler and should continue to yield strong results going forward.

Courts, government agencies and law enforcers use Tyler's customizable software to do everything from manage land records to process parking tickets. The company has gained from partnerships with IBM (IBM), Dell (DELL), Canon (CAJ) and Epson.

The Dallas-based company boosted revenue during the first two quarters of the year, and analysts expect the company to have increased sales 7.7% during the third quarter. Tyler will release its results on Oct. 28. Without the drag of long-term debt, the company has posted a return on equity of 18%.

Tyler also stands to benefit from the $130 billion in economic stimulus funds its clients are eligible for. This influx of capital should spur many customers to modernize their computer systems. Providing service to these upgrades will pay dividends for Tyler for years to come.

From a more technical perspective, Tyler has attracted a high degree of short interest, with about 9.8% of shares sold short and a short ratio of more than 13. Speculators may have jumped on the stock after it climbed 32% in the past year. While that price may look rich to some, the company appears to be supporting its valuation with price-to-earnings and price-to-sales ratios that are on par with the industry.

Increasing government efficiency may be a Sisyphean task, but Tyler Tech has been making money at it for over 40 years. Expect that trend to continue. We rate the company "buy."

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