umps15 (37.94)

I like ALLT

September 04, 2010 – Comments (1) | RELATED TICKERS: ALLT , CSCO

There is a growing demand for Deep packet inspection technology as consumer's increasing desire for data is outpacing the network's capabilities. Basically DPI allows service providers to monitor their network to see where the traffic is going to and coming from. If someone is using skype on their iphone, or using bit torrents from their PC, they can identify this and act accordingly. They can implement policies that caps certain kinds of use, limit bandwidth use,  and steer users to value added services based on where and what they’re doing.

 Allot communication is an Israeli company that offers these solutions. In addition , they offer typical hardware/software services for URL filtering and bandwidth policy management. Currently, large portions of their revenue is derived from Traffic management, and network management systems. They can offer these services to enterprise/government/education networks, internet service providers, and mobile service providers.  They have a globally diversified revenue stream , 45% Europe, 15% US, and 26% Asia, 14% in others as of 2009.

It’s clear to me that the current trend, is moving towards a much less open network. Service providers are facing more pressure to actively manage their traffic , governments are trying to assert their control. Even the “don’t be evil” google is seeking to implement a more favorable traffic management system with Verizon that gives their sites priority.  Government regulation towards a more open internet can also stifle their growth (but I see this being unlikely, as government wants the same thing that the corporations want: a less open internet). Allot can benefit from this, but competition is stiff. They compete with Cisco ,  Bluecoat, Procera, Cloudshield, directly. 

Annual Revenue has increased 20% since 2006, quarterly revenue also shows consistent growth since 2008. Currently market cap is about 2.5 times (forward) sales and 3 times cash right now. High insider ownership at 17.9%. They have been unprofitable for the years of 1997 – 2009, excluding 2006. In Q2 2010, they took a loss of 7 million due to some bad prior investments in Auction rate securities . If excluding this loss, they actually saw an income of .78 million.  Which is good, because they were slowly decreasing their net loss while increasing their revenue. They should see profits staring from the next quarter on.

27% of their revenue is the costs of good. And they have about 9 million in operating costs. Thus next quarter (assuming current growth rate), I expect 15 mil in revenue and 1 mil in net income and Q4 should be 17 mil and 2mil in net income. If they meet the Q4 estimates, their forward P/E is 15 assuming current stock price, and P/E is 20 assuming if they meet the Q3 estimates. I think this is a good value for this promising company operating at a very attractive segment of the industry.