By Glen Trematore
Every day we are bombarded with the fact that we are at war, and I am not talking about the battlefields in Iraq. The battle I speak of has to do with intellectual property, personal identity theft, and Internet security. Have you or someone you know had a computer attacked and paralyzed by one of the "worms" we hear about so often? Have you ever opened an email you didn't recognize? I have. What a nightmare! If you own or work on a computer, you are at war.
When you think of information technology (IT) security, what are the first names that come to mind? Perhaps it's Symantec (Nasdaq: SYMC) or Network Associates (NYSE: NET). These are both large companies, recognized as leaders in this field.
However, today I give you my take on a lesser-known name that may have greater growth potential, Aladdin Knowledge Systems (Nasdaq: ALDN). Aladdin provides products that prevent unauthorized use of software, protect intellectual property, and proactively protect networks against viruses, worms, spam, and nonproductive content. Their products also enable real-time inspection of Internet traffic without reducing network performance. (I mention this last feature as a warning to those of you who surf the Net on company time. "Big Brother" may be watching.)
Before we get started, let me say that this stock is not for the faint of heart. Aladdin has a market capitalization of $240 million and therefore qualifies for investors with a "speculative" risk tolerance. With this is mind, there are many things I find attractive about Aladdin.
The company has no debt, and sports a debt-to-equity ratio of better than 3-to-1. The last four quarters' earnings growth has been better than 100% year over year. The expectation for 2004 is an earnings growth of 104%, and 2005 estimates call for a 57% increase.
Insiders and management own 30% of the outstanding stock. Therefore, they have a vested interest in the stock's performance. This is below the 50% insider ownership that Tom Gardner likes to see in Motley Fool Hidden Gems candidates, but it's an impressive stat nonetheless.
Aladdin's customer list includes names like Adobe (Nasdaq: ADBE), the Canadian Department of Defense, the City of Valencia (Spain), Dartmouth College, ExxonMobil (NYSE: XOM), Macromedia (Nasdaq: MACR), Siemens (NYSE: SI), SunTrust (NYSE: STI), and Time Warner (NYSE: TWX).
The stock's relative strength to the rest of the market is also impressive. Despite the recent pullback in technology, Aladdin trades within 5% of its 52-week high and has a relative strength rating of 99 by Investor's Business Daily (IBD). This means that Aladdin has outperformed 99% of the 6,000 stocks tracked by IBD.
Fellow fools, we are at war. It would a mistake for any individual or company to go into battle each day without some form of security, including the type of security that companies like Aladdin Knowledge Systems provide. Given its vital positioning and strong financials, Aladdin could make a compelling addition to an investor's portfolio.
Source: Motley Fool
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