As for valuation, there is some risk, but not much. Even after this quick drop in price, Vasco, whose revenues are expected to grow 65% in 2007 and 31% next year, sports a current and forward P/E of 56 and 42, respectively. Analysts, besides wanting higher salaries, also want to keep their jobs, so it's not worth it for them to recommend anything valued so highly, even if they do believe the run will continue.
Luckily for you, I don't have a salary to protect -- I call it like I see it, and I think the stock is a good buy here. Vasco has consistently exceeded expectations, and back in July (about 30% ago for the Chinese stock market), it raised full-year revenue-growth guidance from 35%-45% to 55%-65%. That's huge! And the CEO says its current banking customers represent less than one-fiftieth of the worldwide banks, so there's plenty of room for further market penetration.
Most importantly, as you can see in the chart below, since this run-up began in late 2006, Vasco's stock has tested and bounced off its 50-day moving average seven times. This is just the latest test, so while it's possible this time will be different, I think strong earnings and guidance will show that this amazing story is still developing and the longs will be rewarded.
Software In-Line Results From Red Hat 9/26/2007 8:31 AM EDT The company had an OK quarter with an OK outlook and no signs of any macro-related softness.
Software Hope That SAP Is Copying Oracle 10/11/2007 5:51 AM EDT With its acquisition of Business Objects, perhaps it's figured out the best strategy -- its opponent's.
At the time of publication, Sykes had no positions in the stocks mentioned, although positions may change at any time.Timothy Sykes trades for his own account. He managed the Cilantro Fund, starred in the reality show Wall Street Warriors, and authored An American Hedge Fund. Currently he also writes the blog timothysykes.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Sykes appreciates your feedback; click here to send him an email.
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