"Onyx is very much overlooked from a valuation perspective," Steele says. "Near term, we expect Onyx to show strong December-quarter results with incremental upside to our estimates."

Steele initiated coverage of the stock on Monday with a "buy-aggressive" rating and a 12-month price target of $60.

Onyx went public last February with shares priced at $13.

The stock doubled in price over the past few months and has more recently been changing hands in the low 30s.

Onyx Software post-IPO stock performance

Analyst Opinions
Strong Buy	2
Buy	3
Hold	0
Sell	0
Strong Sell	0
Full Analyst Report
Source: Zacks

Paul Krieg, an analyst at Legg Mason, based in Baltimore, issued a "buy" recommendation on the stock in early October when shares were priced at $16.

He has raised his price target twice since then, establishing a new $50 12-month price target on Jan. 5.

"They knocked the cover off the ball in the third quarter," Krieg says.

Revenue growth, for example, came in 21 percent above Krieg’s previous estimate. "I definitely think there is room for them to outperform relative to expectations," he says.

Onyx posted its first profitable quarter in 1999’s third quarter. Profitability, however, isn’t what has analysts most impressed.

Instead, they say Onyx’s stock is undervalued relative to its peers for another, more-compelling reason.

"This is a revenue growth game," Krieg says. "It’s about market share, not earnings."

Krieg’s price target, for example, is based on a ratio of the stock price to annualized last-quarter sales. Using that formula, Onyx trades at about 17.3 times price-to-annualized last-quarter sales, vs. 34.7 and 25.6, respectively, for competitors Pivotal Corp. {PVTL] and SalesLogix Corp. {SLGX}.

Pivotal post-IPO stock performance

"I think it’s very fair to compare the stock to Pivotal," Steele says. He says valuation comparisons with companies such as Quintus Corp. {QNTS}, Silknet Software Inc. {SILK} and Vignette Corp. {VIGN} are also warranted.

"This is a huge market opportunity," he says. "A lot of companies are exploring it and seeing how it can impact their business."

Bellevue, Wash.-based Onyx Software makes products used to automate and coordinate customer-service activities across a number of platforms, including the telephone and the Internet.

"Onyx has a very good reputation as a service-oriented company," says Bob Chatham, an industry analyst at Forrester Research, based in Boston.

Chatham was impressed, he says, when a colleague revisited the Onyx Web site after previously registering his identity.

"After floundering around their Web site for a few minutes he picked up the phone," Chatham recalls. "It was Onyx calling to see if he was having any problems on the site."

Chatham says many companies want to be able to provide similar coordinated services online, particularly for their best customers. "You get that kind of customer-level profitability analysis with their software," he says. "It’s a very powerful tool."

Onyx has some formidable competitors, however, most notably Siebel Systems Inc. {SEBL} and, potentially, Oracle Corp. {ORCL}, companies that currently primarily serve larger, more high-end enterprises. That’s in addition to more direct competitors such as Pivotal and SalesLogix.

"The good news is that Onyx has a lot to offer in their core mid-market," says Erin Kinikin, customer-relationship management research director at Giga Information Group, based in Santa Clara, Calif. "But if they stick their head up too far into the enterprise market, an Oracle or a Siebel are likely to cut it off."

Oracle, for example, is working toward adding similar customer-service functionality to its core product lines, a development that analysts say will complicate matters for companies such as Onyx that are looking to move up-market.

"Onyx has been very strong in the mid-market," agrees Judy Hodges, research director at International Data Corp., based in Cambridge, Mass. "But there continues to be a wealth of opportunities for the company in the mid-market. I think Onyx will continue to be a prominent player."

The overall market for customer-management applications is expected to grow by more than 35 percent over the next two years, reaching $3 billion by 2003, according to Forrester Research.

On Oct. 21, Onyx Software reported third-quarter net income of $336,000 on revenue of $15.7 million, as compared with a loss of $2.07 million on revenue of $9.04 million for the same period a year earlier.