Five Lessons From a Winning Stock Play

Larsen Kusick is a research associate for the Stocks Under $10 service at TheStreet.com. For a more information about Stocks Under $10 and a free trial, click here.

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Those who don't follow the small-cap sector are probably unfamiliar with Vasco Data Security (VDSI), one of the top-performing stocks in the group since the beginning of the year. Investors in Vasco have been rewarded nicely in 2007 as the company posted better-than-expected financial results in both of its quarterly announcements this year, first in February and again last week, helping shares log a hefty 82% gain in just over four months.

Vasco is currently a Two-rated holding in the Stocks Under $10 model portfolio, meaning that we believe there's still enough upside to continue holding the stock, but that the risk/reward profile is not good enough to recommend additional purchases at the current price level. Nevertheless, investors can learn a number of valuable lessons by taking a look back at the company's progress in the almost two years since it became part of the model portfolio.

Lesson No. 1: Products and services meet a growing need.

Early on, Vasco positioned itself as one of the leading providers of security products -- both hardware and software -- aimed at preventing identity theft through user authentication.

Companies across the financial industry use Vasco's tokens and software to defend against sophisticated criminals trying to gain access to their databases and their customers' personal information. The growing need for security measures beyond simple passwords has helped Vasco post revenue growth of 83% in 2005 and 39% in 2006, with analysts' expectations pointing to a 55% gain in 2007.