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

On its earnings conference call, Lawson announced it was awarded a deal from retailing giant Wal-Mart ( WMT) to implement Lawson's human resources software. Among potential deals out there, few are larger than Wal-Mart. We believe this deal could serve as launching pad for other big deals, as Wal-Mart's stamp of approval shows Lawson's products are effective and easy to implement across a large company with a lot of users.

In addition to the Wal-Mart deal Lawson won some other meaningful deals where it went head-to-head with competitors SAP ( SAP) and Oracle. Namely, JP Morgan reported last week that retailer Mervyn's selected Lawson's software ahead of Oracle and SAP.

One reason for Lawson's newfound success landing big deals is its ability to offer customers a combination of supply chain management and ERP resources. Combining these reduces the number of software vendors a potential customer would need, a common worry for chief technology officers. Also, Lawson's peer group has consolidated over the past year, leaving just SAP and Oracle as first-tier competitors,and Lawson now stands out among the top ERP providers.

With such a positive backdrop, Lawson issued bullish sales and earnings guidance on the Sept. 29 earnings conference call. The midpoint of the company's fiscal second-quarter sales guidance calls for sales of $86 million, and Lawson expects EPS of 4 cents to 6 cents.

Both forecasts are slightly better than analyst expectations of $84 million in sales and largely inline with 5 cents a share in earnings. The company's upbeat guidance signals growing confidence among Lawson's management team and sales force, which we interpret as bullish for earnings results and the stock in the coming three- to 12-month period.

Lawson is slated to close its acquisition of Swedish software company Intentia by year end, which should allow Lawson to exploit new sales opportunities with its complete suite of software products. Looking ahead, we expect Lawson's sales results to be driven by larger deals and by more competitive software products.

From a valuation perspective, Lawson shares could still have more upside. At its recent quote, Lawson's enterprise value is just 1.15 times the Street's 2006 sales estimates. After backing out the company's $250 million cash balance from the stock's current market price, shares are changing hands at just 19 times 2006 analyst earnings estimates and a mere 13 times 2007 analyst earnings estimates. On average, other software vendors are trading at 3 times their enterprise value to 2006 sales estimates, and 26 times 2006 earnings estimates.

It's not common for one of our turnaround plays -- or Inflection Points, as we refer to them -- to become an immediate winner. Given the financial and operational improvement in the quarter, as well as the company's strong fiscal second-quarter outlook, we expect Lawson to continue its upward momentum.

If you didn't snap up shares in Lawson when we first recommended the stock last month, there's still time. We expect the company's shares to trade higher by a double-digit percentage in the coming year.
The Stocks Under $10 Staff is Will Gabrielski and David Peltier.

David Peltier is a research associate at TheStreet.com In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

William Gabrielski is a research associate at TheStreet.com and is accredited with a Series 7 license. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabrielski welcomes your feedback; click here to send him an email.