Double-Take Software: Guarding your IT system

Most businesses, educational institutions and government agencies have come to the point that they could not operate effectively without their sophisticated information technology systems. There is an outfit in Southboro, Massachusetts that is getting an increasingly bigger share of the growing IT security pie.

Double-Take Software's (NASDAQ: DBTK) products and services enable customers to protect and recover computer files. Its software reduces, or eliminates, data loss and provides the ability to recover the application and server needed to utilize the data through automatic, or manually initiated failover. Customers include law firms, financial institutions, hospitals, school districts and government entities. Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (NASDAQ: INTC), Microsoft (NASDAQ: MSFT) and Qwest Communications International (NYSE: Q) are among the firm's strategic partners. Major competitors include EMC Corporation (NYSE: EMC) and Symantec Corporation (NASDAQ: SYMC)

The company surprised the Street late last month, when it reported Q1 EPS of 14 cents and revenues of $17.9 million. Analysts had been looking for 7 cents and $17.2 million. Management also guided Q2 EPS to 15-16 cents (8 cent consensus), Q2 revenues to $19.0-$19.5 million ($18.6M consensus), FY07 EPS to 56-62 cents (41 cent consensus) and FY07 revenues to $78.5-$80.5 million ($79.38M consensus). The CEO remarked, "Especially pleasing was the continued expansion of our international business, the continued additional sales of our products within our large installed base and the continued growth of our partner program".

DBTK shares popped above 30-day/50-day moving average support into a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy" and three "buys." Analysts see a 25% average annual growth rate, through the next five years. The DBTK Sales Growth rate (67.95%) and EPS Growth rate (-0.44 to +0.14 yr/yr) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 41% of the outstanding shares. Since its initial public offering last December 15th, the stock has traded between $10.25 and $17.75. A stop-loss of $15.20 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and Vice-President of Stockwinners.com.