Magma Design Automation (NASDAQ: LAVA) provides electronic design automation software products for engineers who create integrated circuits. The company's products comprise an integrated digital approach to the chip development cycle, from initial design through physical implementation. Clients are chip makers in the communications, computing, consumer electronics, networking and semiconductor industries. Texas Instruments (NYSE: TXN) accounts for about 16% of sales.

The firm pleased investors last week, when it reported Q2 EPS of 15 cents and revenues of $53.5 million. Analysts had been expecting 11 cents and $51.4 million. The CEO attributed success to the influence of new products. Management also guided Q3 EPS to 13-15 cents (14 cent consensus), Q3 revenues to $53-$55 million ($53.44M consensus) and FY08 EPS to 53-55 cents (51 cent consensus). The LAVA share 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 issue with three "strong buys," three "buys" and one "sell." Analysts expect a 45% growth rate, through the next year. The LAVA Price to Sales ratio (2.98), Sales Growth rate (27.50%) and EPS Growth rate (-0.05 to 0.15 y/y) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 77% of the outstanding shares. Over the past 52 weeks, the stock has traded between $8.13 and $15.70. A stop-loss of $12.95 looks good here.

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