In my weekly premium newsletter -- Undiscovered Micro-Cap Gems -- my goal is to introduce readers to a variety of promising micro-cap investing ideas that they may wish to consider for their portfolios. In doing so, I generally look for small, neglected companies that have been overlooked by conventional Wall Street sources. I also look for undervalued firms that are trading at a steep discount to their intrinsic value. Many of these individual investment ideas have the potential to deliver triple-digit percentage gains in the years ahead.

Below you'll find an in-depth look at one such investing idea that I introduced my readers to last weekend.  To gain access to dozens of similar investing ideas each and every week, you'll need to subscribe to my Undiscovered Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy today's sneak peak at one of my most recent micro-cap investing ideas...

---------------------------------------------
Edgewater Technology (EDGW, $4.36)
---------------------------------------------

Edgewater is a successful management consulting firm that focuses on the implementation of technology solutions. The company, formerly known as StaffMark, provides a broad range of IT consulting services primarily to middle market customers. Its client base spans across many industries and sectors, and includes such notable firms as American Express (AXP) and Merrill Lynch (MER). Many companies seek outside help from consulting firms such as Edgewater because of their deep industry knowledge, their technical expertise, and their external, objective perspective. EDGW has successfully penetrated this competitive field by focusing on providing premium IT services.

Last month, EDGW released positive first-quarter results. Net revenues climbed +30.5% to $8.3 million, up from $6.4 million a year ago. Furthermore, gross margins expanded by 250 basis points to 42.7%, helping gross profits jump by +48% to $3.8 million. Cash flows also showed strong improvement, as operating activities generated $1.4 million, reversing an outflow from last year's first quarter. Overall, I was pleased with the results, as they demonstrated the effectiveness of the company's strategic decision to shift into premium IT service offerings. I'm also optimistic about the firm's results in the coming quarters, as I believe EDGW is on track to post continued revenue and profit growth.

Aside from posting impressive financial results, Edgewater also maintains a healthy balance sheet. The company has more than $32 million in cash on the books, or $3.18 per share, with no long-term debt. By comparison, the stock only trades at $4.36 per share, so cash equivalents represent three-fourths of the firm's market cap. Currently, the shares are trading at a Price/Free Cash Flow ratio of just 18, which compares favorably to the industry average of 43. In addition, the firm's enterprise value is only $1.17 per share, so these common valuation ratios look even more attractive when enterprise value is used in the calculation.

Finally, insider trading activity has been positive in EDGW stock over the last two months. In April, CEO Shirley Singleton made a modest purchase of 1,000 shares. Over the last two weeks, another director has made a series of purchases totaling 5,000 shares. The company has also attracted the attention of several successful institutional value investors, including Fuller & Thaler Asset Management, Axa, Gabelli, and Vanguard. These insider transactions reinforce my opinion that Edgewater is a cash-rich, profitable operation with solid growth prospects.

-----------------------------

Important Note: The above article was merely a small excerpt from a recent issue we sent to subscribers of our premium value investing service -- Margin-of-Safety Investing. In each issue of that newsletter, editors Nathan Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted stocks that should provide investors with a solid margin of safety at current prices. To receive your copy of our most recent issue of Margin-of-Safety Investing, as well as other guidance similar to this twice per month, you'll need to subscribe to this publication. To learn more, please visit:
https://www.streetauthority.com/subscribe-msi.asp

Thanks for reading!

Income Security of the Month Our "Income Security of the Month" for August 2008 invests in a fast-growing overseas market that doesn't get much exposure in the mainstream financial press. And although it typically makes enormous annual dividend payments -- it has paid an average dividend of 25.5% per year over the past five years -- this fund is perhaps most appealing for its total return potential. Specifically, the fund has delivered total returns of +178.9% since 2003, and it ranks in the top 10% of its category over the past decade.

Top 10 Stocks for 2008! Since we began publishing this report back in 2003, the picks we've featured have consistently beaten the broader market -- delivering average gains of +21.3% per year and outperforming the S&P by a nearly 2-to-1 margin. Act now to reserve your copy of our newest report -- Top Ten Stocks for 2008.

 

Success Trading -- 365 Days Without a Loss Success Trading Group scored 52 wins in 52 weeks! Get their weekend newsletters free.  High-Yield Investing If you're looking for both high yields and enormous capital gains, then you need to learn more about our "Income Stock of the Month."	Stephen Leeb's Market Forecast Receive a free ongoing, PhD level Wall Street education in how the markets work so that you can see into the future and position yourself accordingly. Investor's Business Daily (IBD) Get 10 Free Issues of Investor's Business Daily (IBD) – Plus 2 Free Weeks of Investors.com