Is Rally Software Development Corp (RALY) Really Rallying? ORCL, IGV & SKYY

Small cap cloud and enterprise services stock Rally Software Development Corp (NYSE: RALY) just had a reversal – meaning its worth taking a closer look at the stock along with potential performance benchmarks like Oracle Corporation (NYSE: ORCL), iShares North American Tech-Software (NYSEARCA: IGV) and First Trust ISE Cloud Computing Index (NASDAQ: SKYY).

What is Rally Software Development Corp?

Small cap Rally Software Development Corp is a global provider of cloud-based solutions for managing Agile software development. More specifically, Rally Software Development Corp's leading global provider of enterprise-class software and services solutions that accelerate the pace of innovation, improve productivity and respond effectively to evolving competitive markets and customer needs. Rally's SaaS platform transforms the way organizations manage the software development lifecycle by aligning software development and strategic business objectives, facilitating collaboration, and increasing transparency while the company's consulting and training services division apply Agile and Lean approaches to help organizations innovate, lead, adapt and deliver.

As for potential performance benchmarks, Oracle Corporation is a provider of enterprise software and computer hardware products and services; the iShares North American Tech-Software tracks the S&P North American Technology-Software Index through 61 holdings; and the First Trust ISE Cloud Computing Index tracks the ISE Cloud Computing Index through 41 holdings.

What You Need to Know or Be Warned About Rally Software Development Corp

At the end of the first week of June, Rally Software Development Corp reported a 21% revenue increase to $19.4 million and a GAAP net loss of $8.5 million compared to a GAAP net loss of $5.8 million. Total paid seats increased 23% to nearly 226,000 over the total paid seats one year ago and a 6% increase over total paid in seats at the end of the prior quarter with new customers including: Black & Veatch, Core Media, the Driver and Vehicle Licensing Agency in the UK, eTouch, PowerNet Global, Smartshift Technologies, Snag-a-Job, SpiritClips and Ubiquity Broadcasting. The Chairman/CEO commented:

"We continued our success in selling our solution to the large enterprise buyer and clearly enjoyed support from our largest customers.  For example, the 7,000 seat upgrade order we enjoyed from one of our top 15 customers - now at 12,000 seats under contract - underscores this aspect of our business.  We struggled slightly in selling new seats to new customers, which was due largely to fast growth in quota carrying headcount that caused some execution delay as these new team members trained and learned about their new territories and Rally Software's business."

In the earnings call though (the Transcript is available on Seeking Alpha here), he stated:

"We fell short of our expectations with respect to new seats sold to new customers. As we discussed in our last earnings call, we've made significant investments in our sales and marketing engine. We have new sales teams working new territories and [it was dropped] (ph) as a result we were seeing sales cycle take a bit longer, although this was not surprising.

We anticipated that our sales headcount growth would cause some execution delay as our new sales reps trained and learned new territories while seasoned reps learn to work with new team members. It takes time but we are excited about the quality of our sales teams and we are confident in these investments and at the lay of foundation for stronger performance in the future."

Nevertheless, shares plummeted 30% because quarterly results and outlook (which was lowered) disappointed Wall Street; but since then, a couple of positive articles have appeared on sites like Seeking Alpha to halt the share reversal.

Moreover, there has also been steady insider buying since the beginning of the year – including three transactions since the earnings report:

DateInsiderSharesTypeTransactionValue*

Jun 12, 2014	BOGAN THOMAS FDirector	50,000	Direct	Purchase at $9.18 per share.	459,000
Jun 12, 2014	WOLF TIMOTHY VDirector	5,000	Direct	Purchase at $9.15 per share.	45,750
Jun 12, 2014	MILLER TIMOTHY A.Officer	30,000	Direct	Purchase at $9.21 per share.	276,300
Mar 31, 2014	LEJEAL JAMES MOfficer	17,400	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 31, 2014	MESIKAPP KENNETH MOfficer	6,400	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 31, 2014	HUBERMAN DAVID A.Officer	4,500	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 31, 2014	PATTON DANIEL A.Officer	13,000	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 31, 2014	MARTENS RYAN AOfficer	10,600	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 27, 2014	MESIKAPP KENNETH MOfficer	4,000	Direct	Option Exercise at $5.48 per share.	21,920
Mar 17, 2014	MILLER TIMOTHY A.Officer	1,639	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Mar 17, 2014	LEJEAL JAMES MOfficer	55	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Feb 25, 2014	MILLER TIMOTHY A.Officer	1,639	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Feb 25, 2014	LEJEAL JAMES MOfficer	55	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Feb 20, 2014	MILLER TIMOTHY A.Officer	1,639	Direct	Acquisition (Non Open Market) at $0 per share.	N/A
Feb 20, 2014	LEJEAL JAMES MOfficer	55	Direct	Acquisition (Non Open Market) at $0 per share.	N/A

 

Share Performance: Rally Software Development Corp vs. ORCL, IGV & SKYY

On Tuesday, small cap Rally Software Development Corp fell 1.19% to $10.82 (RALY has a 52 week trading range of $8.40 to $33.06 a share) for a market cap of $268.99 million plus the stock is down 44.9% since the start of the year, down 54.7% over the past year and down 39.2% since April 2013. Here is a look at the latest performance chart for Rally Software Development Corp verses the performance of Oracle Corporation, iShares North American Tech-Software and First Trust ISE Cloud Computing Index:

As you can see from the above chart, Oracle Corporation, iShares North American Tech-Software and First Trust ISE Cloud Computing Index have been steady performers while Rally Software Development Corp began declining after last summer.

Finally, here is a look at the latest technical chart for all four investments showing a clear downtrend for Rally Software Development Corp:

The Bottom Line. Small Rally Software Development Corp does look like its having a reversal and is clawing back some of its losses – at least for the short-term. However, investors with a long term time horizon will need to look more closely at the stock along with the product and services it offers.