Back to SCS home pageThe BG Index
The "BG Stock Market" was introduced in the July/August 1995 issue of Business Geographics. In this issue, we unveil the BG Index, comprising nine stocks representing software, data and hardware interests. The firms and their corresponding stock symbols are shown in the chart at right. Inclusion Criteria
Several criteria were established to select the companies listed in the index. A company must be publicly traded on one of the exchanges, and a minimum 8% of its total revenues must come from geographic-related services or products.
Those requirements exclude a few foreign firms and large companies, such as IBM Corp. The index primarily reflects small-growth companies that are not normally covered by major indexes. The firms comprise a significant percentage of total revenues for the industry, but not a majority account. Nevertheless, the companies’ stock price performances, as tracked by the index, are one measure of the business geographics industry’s health and growth.
Methodology
The public status of dozens of companies was investigated to identify firms to include in the index. Many business geographics companies are privately held, but we expect that as companies grow, more will become public and the index will expand. GIS-specific revenues were obtained from Dataquest, Inc., a San Jose, Calif., market research firm, and the companies reported total revenues.
Daily closing stock prices for all index stocks since the beginning of 1994 were tracked, and an equal price weighted model was developed. The index, therefore, assumes that the same dollar amount was invested for each company at the beginning of 1994. When a company became public after the index’s starting date, such as MapInfo Corp. (MAPS) and Eagle Point Software (EGPT), it was added at an equal price weighting based on a new issue’s opening price. Dividends also are included.
As shown, the index begins at a base of 100. Therefore, if $100 were invested in equal amounts in all index stocks beginning in January 1994, and an equal pro-rata amount was invested in the new issues, the stock would be worth $180.20 on June 30, 1995 -- a total increase of 80.2% during 18 months.
Comparative Index Performance
The BG Index clearly outperformed the Standard and Poors’ 500 index (S&P 500), as shown by the chart. Since the beginning of 1995, the mid-year return of the BG Index is 39%, compared to 19% for the S&P 500. Returns of two other major indexes, the Dow Jones Industrial Averages (DJIA) and the National Association of Security Dealers (NASDAQ) composite index are 19% and 25%, respectively, during the same time period, using closing prices. In 1994, the index’s first full calendar year, its total return was 32.3% compared to -1.3% for S&P 500, -2.4% for NASDAQ and 2.1% for DJIA.
MapInfo Shares Drop
The closing price of MapInfo stock(MAPS) plunged from $34.63 July 13, 1995 to $22.38 the following day. The stock began trading Feb. 1, 1994 at $22, reaching a trading low of $14.75 Aug. 16, 1994, and a high of $40 June 7, 1995. At press time, MAPS made a slight rebound to close at $22.25 on Aug. 3. The recent stock price decline, which is being watched closely and discussed in the industry, caused a several-point reduction in the BG Index.
Reasons for the drop include disappointing earnings and the brokerage firm Alex, Brown & Sons lowering its MapInfo recommendation from “buy” to “neutral”. Analysts expected third-quarter share earnings (ending June 30, 1995) of 22 cents, but they came in at 13 cents(diluted). This compares to 15 cents for the same quarter a year ago. When a stock, such as MapInfo, is trading at a high price to earnings ratio and earnings growth is expected to be strong, a large, unexpected drop in earnings often causes a significant price drop.
Business Geographics, September 1995; pp 56.
(This article was reproduced with permission from GIS WORLD Inc., and Business Geographics.)