SeaChange International (NASDAQ: SEAC) supplies digital server systems and software used by television and cable operators to automate the distribution and management of advertising, movies and other programming. Its ITV System allows operators to offer video on demand, pay-per-view, local ad insertions and other interactive services to subscribers, while its VODlink set-top box middleware allows cable subscribers to access a variety of interactive features. Customers include Comcast (NASDAQ: CMCSA), Verizon Communications (NYSE: VZ) and Walt Disney (NYSE: DIS).

The company surprised the Street last week, when it reported Q3 EPS of 11 cents and revenues of $49 million. Analysts had been looking for a loss of two cents and $45.2 million. In analyzing the company's quarter, Friedman Billings was pleased with the transition to a more software-focused business model. SeaChange noted that the third quarter had benefited from software deployments with non-SeaChange VOD servers.

The SEAC price popped on the news and then moved into a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the shares with three "strong buys", one "buy" and one "hold". Analysts see a 130% growth rate, through the next year. The SEAC Price to Sales ratio (1.27), Price to Book ratio (1.45) and EPS Growth rate (-0.04 to 0.11 y/y) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 79% of the outstanding shares. Over the past 52 weeks, the stock has traded between $4.95 and $11.05. A stop-loss of $6.35 looks good here.

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