VASCO Data Security International, Inc. (VDSI)

NetscribeTech (80.47) Submitted: 1/10/07 7:13 AM : Start Price: $14.18 VDSI Score: 3.14

High-growth companies are difficult to spot in the information security business, but Vasco Data Security International (VDSI), which develop and market security products and services, should prove to be an exception. With growth rates well above the industry standard, an ascending stock and a federal directive for banks to strengthen their online banking security, Vasco is poised for an interesting year.

On a growth path, some 2.9 million units of its biggest authentication product, Digipass, were shipped in its most recent quarter, an increase of 60% on y-o-y basis. Furthermore it added 29 new bank customers in the quarter, endorsing which its revenue increased 41%, while profit nearly doubled to $3.3 million.

Taking cue from the same, a high growth of well above 40% in top-line is being anticipated for 2007 and that's at least three times what the industry overall is growing. A significant portion of that growth accrues as banks ramp up their deployment of software authentication products to fulfill the Federal Financial Institution’s requirements. Most U.S. banks have rolled out pilot deployments and are likely to increase their scale over the course of this year and next, which should translate into significant revenue gains for Vasco.

A robust client build-up and a strong backlog over the past few years should start reflecting large deployments in 2007, resulting into better utilization of resources with cost of manufacturing falling faster than its sales price, allowing for improved margins. Strategically moving, Vasco has strengthened its direct sales force and has formed partnerships to penetrate deeper into the financial services market.

Vasco has undergone a rapid growth in sales and earnings and employs very minimal debt in its capital structure. Moreover, it has been able to generate enough cash to make acquisitions without an additional financing to support its product line expansion, which has helped a lot in pushing its demand forward. All of these together make Vasco, an excellent long-term story.

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