Blue Coat Systems (BCSI): Guarding your e-business

The company surprised investors last week, when it reported fiscal Q1 EPS of 43 cents and revenues of $62.4 million. Analysts had been expecting 35 cents and $58.8 million. Management also guided Q2 EPS to 43-50 cents (37 cent consensus) and Q2 revenues to $67-$70 million ($61.65 million consensus). The CEO said that the firm is in a very fast growing market and sees much growth potential. Roth Capital, Wedbush Morgan and Needham subsequently declared the stock a "buy." The stock popped on the news and then moved into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the shares with one "strong buy," five "buys" and two "holds." Analysts expect a 32% growth rate, through the next year. The BCSI Sales Growth rate (71.43%) compares favorably with industry, sector and S&P 500 averages. Institutional investors hold about 87% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $16.66 and $87.05. A stop-loss of $71.75 looks good here. Note that the company declared a two-for-one stock split earlier in the month. The issue will trade split adjusted on October 3.