Quality Systems (QSII)

Quality Systems sports a 3% dividend yield and is an $829 million dollar
company. At first glance, with a yield like that you might mistake this company for a small-cap bank. This company is no bank. It is a fast growing company that grew diluted earnings over 30% the last 5 years. Quality Systems brings medical offices up to speed in the 21st century with computer hardware and software for their medical records. I've seen a couple offices myself just over the past couple years that could be Quality Systems customers. I'm sure you have been to a doctor, dentist or eye doctor that could have used an electronic system. It is almost hard to believe that many offices still use paper systems. The market for their service is good.

The stock has been under some good selling pressure over the last year.
However, they are doing very well financially. The balance sheet is fantastic.
As of last quarter there was $26 million in cash, a current ratio (current
assets/current liabilities) of 2.61 and no long-term debt. They generate a lot
of free cash flow, some of which is paid out as a dividend. Earnings growth has
been declining but this is expected when a company grows at over 30% in the
past. Since they maintain support for their clients after their purchase, there
will be a good recurring revenue stream as clients stay with them.

Opportunity Cost

With an earnings yield of 4.7% this is about inline with a risk free government
bond. QSII's history of returning cash to shareholder through dividends
is noteworthy and its rising earnings. If they manage to grow earnings every
year at 20% until 2012 and trade for a PE multiple of 20 then there is a 17%
annualized return to be had buying the stock around $30 a share.

Full disclosure: no position in Quality Systems QSII