Catapult Communications (CATT): A focus on digital telecom testing

Posted Sep 18th 2007 2:59PM by Larry Schutts
Filed under: Earnings Reports, Motorola (MOT), Nortel Networks (NT), Alcatel-LucentADS (ALU), Technical Analysis, Stocks to Buy

Testing is a necessary step in the process of effectively configuring a system of many elements. When it comes to the design, integration and installation of telecommunications systems, many of the big name providers look to a Mountain View, California outfit for testing expertise.

Catapult Communications (NASDAQ: CATT) provides software-based digital test systems used by telecommunications equipment manufacturers and service providers to design, test, and configure network elements. Specific applications involve design and feature verification, conformance testing, interoperability testing, load and stress testing, and monitoring and analysis. Clients include Alcatel-Lucent (NYSE: ALU), Motorola (NYSE: MOT) and Nortel Networks (NYSE: NT).

The company pleased investors last week, when it boosted its forecast for the quarter ending September 30 (Q4). Management's new revenue estimate of $9.5-$10.5 million topped the average Street expectation of $9.0 million.

The stock popped on the news and has since 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.

Brokers recommend the issue with two "holds." Analysts see a 15% average annual growth rate, through the next five years. The CATT Price to Sales ratio (2.49) and Price to Book ratio (0.93) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 63% 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 $6.41 and $10.99. A stop-loss of $6.75 looks good here. Note that the firm is expected to report Q4 results in late October.

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

Tags: Catapult Communications, CatapultCommunications, CATT, fundamental analysis, FundamentalAnalysis, momentum, pennant, technical analysis, TechnicalAnalysis