FactSet Looks Pricey -- but Here's Why It Should Head Even Higher

NEW YORK (TheStreet) -- It's tough to argue against the premise that information is the most important weapon in a successful investor's arsenal. And with FactSet Research Systems (FDS)  trading near all-time highs, the financial information provider has made its own investors wealthier.

FactSet, headquartered in Norwalk, Conn., provides financial data and analytical applications to the global investment community. It combines company-related content and stock analysis from global markets, and makes that information available through an online platform that reaches investments professionals such as wealth managers, hedge funds and private equity analysts.

Further, with a growing number of "average Joe" retail investors taking more ownership of their investments and retirement accounts, FactSet's services will remain in high demand in the quarters ahead, since its platform helps these people assess risk and analyze market-moving events such as mergers and acquisitions.

But at 30 times trailing earnings, against an average P/E of 21 for S&P 500 stocks, FactSet shares -- already up 16% so far in 2015 -- are not cheap. Ahead of its third-quarter earnings report, due out Tuesday before the opening bell, investors want to know if money can still be made in FDS shares. "Expensive" doesn't mean a ceiling has been reached, however.

Valuation concerns aside, what's more important to focus on with FactSet is the value in owning the shares. How quickly the stock price can climb should be secondary. To put it another way, "you get what you pay for."

Granted, FactSet is not cheap. But what do you get for its high stock price? How about a company that has grown revenue each year for 34 straight years? And over the past 10 years, FactSet has tripled its annual revenues, climbing from around $300 million in 2005 to over $900 million as of the end of fiscal year 2014.

During that span, FDS stock has rewarded its shareholders with gains of over 330%, against gains of 70% and 74% for the Dow Jones Industrial Average (DJI) and the S&P 500 (SPX), respectively.

From my vantage point, FactSet stock has more room to run, given that the company is projected to grow earnings at an annual rate of 11% in the next five years, implying that analysts generally see no signs of the company slowing down.

For the quarter that ended May, FactSet is projected to earn $1.41 per share on revenue of $253 million, translating to year-over-year increases of 16% and 9%, respectively. For the full year ending in August, earnings are projected to grow 14% to $5.60 per share on revenue of $1 billion, up 9%.

FactSet's user base is still growing at a rapid rate, climbing some 11% the second quarter, reaching almost 60,000 accounts. Beyond that, its user-retention has climbed higher than 95%, suggesting FactSet has both pricing power and room for margin expansion.  With underlying strengths like those to support its premium stock price, this is a good time to be invested in FactSet.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

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