VASCO Data Security International, Inc. (VDSI)

jfosu (35.49) Submitted: 3/24/08 2:55 PM : Start Price: $11.27 VDSI Score: -3.01

First, the good. This company has amazing growth and efficiency. Revenue has been growing roughly 60% each quarter compared to the past and earnings have been increasing around 100% while the net margin is increasing and nearing 20%. The company is the 5th(?) biggest digital security company traded in the US and is gaining market share quickly. Particularly encouraging to me is the signing of a recent contract with the leading banks of Japan. This is a very rich markets that was previously untapped by the company. Hopefully this foot in the door opens it up and brings further opportunity. Lastly, I just love the sector in general. With identification theft such a huge issue for people buying/paying bills online the demand for this type of service is at an all time high and only continuing to grow. It may seem this has been identified and worked to a satisfactory level here (laugh), however, such is definitely not the case in rapidly developing countries (China/Brazil/Turkey/etc etc).

Now, the bad. This stock was priced at 40+ 6 months ago before it missed earnings twice and got killed. I understand people get worried over earnings but these sell offs were too extreme. Management explained most of the letdown was because of large orders that were delayed for various client related reasons. One delay request was by a customer so that the new data security system would fit into its deployment schedule. Ok, so these earnings were priced into last earnings expectations and didn't come. That doesn't mean they aren't coming. The profit from those deals will just come a quarter or two later. Here lies a key to understanding this stock and small caps in general - they are subject to a few clients! Earnings will be lumpy but if the product is good in the long haul the outcome will be as well. The company hit its own guidance, which was reaffirmed in late October. The disappointment was from uninformed Wall Street big wigs - not the business. Slowly people will catch onto this and invest in this great company while it's at a discount.

Considering all of the information above it is obvious that I am bullish on this stock. Add in a few other facts like its relatively low PE (28 for that kind of growth?!), the possibility of a buyout by a larger player, and the fact that basically everyone on caps and every other site loves it, and you can see why. I owned this stock a few years ago and jumped off early, missing the big ride to the top. It's not very often second chances are given and I am not missing it this time around!

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