Should You Buy It?: CA

Aided by cost-cutting, management was able to leverage this into 38% year-over-year earnings growth. For the fiscal 2009 overall, the current market expectation is for CA to deliver 26% profit growth, on top of 35% last year.

Even so, the company does face some potential headwinds that could weigh on its growth prospects. For one thing, CA generates about 35% of its total revenue overseas, and the company's near-term results could also be hurt by the recent rebound in the dollar.

For another, the threat of slower macroeconomic growth could mean that fewer customers could decide to renew their software contracts or upgrade to new products as quickly as they would otherwise. For example, about 35% to 40% of CA's total revenue comes from the financial services industry, which continues to be under serious pressure.

Looking at the company's balance sheet, CA has $2.41 billion of cash, but also $2.23 billion of total debt. This is a lot of debt compared with most technology companies that are flush with cash, and that limits management's ability to buy back stock or seek acquisitions.

With that in mind, I believe that readers should avoid CA shares at current levels. The company faces several potential headwinds in the coming quarters that could offset the increasing investor sentiment that the business model can deliver consistent growth.

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