GSB

Globalscape (GSB): Excellent Results, New Cloud Hype

May 13th, 2010 by Yehuda Fruchter   |   No Comments

It was looking bleak for awhile, as company after company that I owned reported weak top-line growth or disappointing profitability during the last quarter. It’s hard to hit a homerun in a stock unless you have both revenue and profit growth combined with very low expectations. Finally, one company, GSB, delivered a truly outstanding earnings report on all fronts (you can read the first GSB report here). The financials were much better than I expected, with revenue growth at 37% and EBITDA growth of 378% year-over-year and 61% quarter to quarter. My quick back of the envelope calculations imply that the stock is trading at 4X EV/EBITDA, which would be extremely low for a software company with exciting growth potential.

But, other than strong financials, what would get more investors interested in GSB? My guess is cloud computing, a hot topic in many tech circles (see this article where GOOG’s CEO called the cloud “the centerpiece of our 2010 strategy.”)

Here’s what GSB had to say about its cloud services and its new parternship with Rackspace:

“GlobalSCAPE announced on its 2009 Fiscal Year End earnings call in March that the Company intended to focus additional activity on channel sales and potentially enter adjacent markets. For example, GlobalSCAPE has signed an initial partnership agreement with Rackspace Hosting Inc, a global leader in web hosting and hosted cloud system infrastructure services. The current partner agreement allows GlobalSCAPE to resell Rackspace’s services. While declining to provide more specific information at this time, CEO Morris stated, “We recognize and appreciate the growing importance of the cloud and cloud-based services. We are working with Rackspace to identify and define mutual business opportunities that best leverage our collective capabilities.”

The bottom line as I mentioned in my first post on GSB, is that new enterprise software deals, improving year-over-year financials, potential exciting deals (like the one with Rackspace), should send GSB’s shares higher over the next year.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in GSB. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise

GlobalScape (GSB)

April 20th, 2010 by Yehuda Fruchter   |   No Comments

Getting back to speculation in micro cap technology stocks, Globalscape (GSB) looks interesting at current prices (GSB – $1.41).

GlobalSCAPE, Inc. develops, distributes, and maintains secure managed file transfer software that enables individuals and business users to exchange information over the Internet, as well as wide-area file system (WAFS) collaboration and continuous data protection (CDP) software.

I actually made a bit of money in GSB during the financial crisis, as the stock cratered beneath $1 and subsequently rebounded. With the stock now trading at close to 40% below its high, and still trending at prices from five years ago, I’ve decided to re-establish a position in GSB.

As is usual with the stock market, the price of GSB bears little relation to the company’s recent financial performance. Though GSB’s business is still down somewhat from peak 2007 levels when the stock traded over $5, the company’s management has done an excellent job maintaining strong cash-flow, and, what I believe, is creating a platform for renewed growth (revenue and profit has in fact been trending up in the last few quarters). With no debt and a stable base of revenue from support contracts, I don’t view GSB’s business as all that risky. On the upside, I believe that the company has several opportunities to generate large increases in revenue, that could result in a substantial increase in the bottom line.

Interestingly, the company’s large increase in deferred revenue in 2009 (a cash-flow item), may signal somewhat increased revenue momentum in the coming year on the income statement, the only financial statement that most on Wall Street pay any attention to. I would also note that the new VP of Sales took a nice chunk of options at $1.35.

Finally, as is evidenced by the company’s recent investment in CoreTrace, a leader in whitelisted solutions for malware, the company is obviously confident in taking more aggressive steps for growth. Hungry companies on the mend looking for deals, make for good investments prior to a deal making spree (for past examples, see PTEC and INAP, prior to their ill-advised acquisitions), since the bankers/analysts often all too eager to “hype” the shares in anticipation of growth. If you can get in early before the hype phase, and sell early before the inevitable downgrades, there’s alot of money to be made.

The bottom line is that new enterprise software deals, improving year-over-year financials, potential exciting acquisitions, and renewed analyst coverage (assuming financials show dramatic improvement as I suspect), should send GSB’s shares higher over the next year.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in GSB. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise