RadiSys Corporation (NASDAQ: RSYS) makes system products for embedded computer applications used in the manufacturing automation, medical, transportation, telecommunications, gaming and test equipment markets. Products include embedded boards, board-level modules and chip-level components. The company also offers system integration and repair services. Clients include Nokia (NYSE: NOK), Nortel Networks (NYSE: NT) and IBM (NYSE: IBM).

The firm pleased investors last week, when it reported Q2 EPS of 14 cents and revenues of $97.6 million. Analysts had been expecting six cents and $87.8 million. The CEO attributed success to strong demand for the company's wireless and IP media server products. Management also guided Q3 EPS to 16-22 cents (nine cent consensus) and Q3 revenues to $98-$103 million ($91.2M consensus).

RSYS shares 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 issue with one "strong buy", one "buy" and one "hold". Analysts see a 15% average annual growth rate, through the next five years. The RSYS Price to Sales ratio (0.71), Price to Book ratio (1.27), Price to Cash Flow ratio (9.53), Price to Free Cash Flow ratio (7.72), Sales Growth rate (29.61%) and EPS Growth rate (-0.09 to +0.14) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% 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 $8.02 and $17.48. A stop-loss of $9.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.