Websense (WBSN) Earnings Miss Expectations
Posted on January 30, 2007
After the close today, Websense (WBSN), reported fourth quarter earnings that missed Wall Street expectations. The company blamed the shortfall on various new accounting policies, but The Market will probably care little for this excuse.
The bottom-line is that the company’s core business has matured and new initiatives have yet to produce meaningful results. If you are long WBSN, like us, this simply means that the upside in the stock will be capped, until the company can show some evidence of renewed double-digit growth. We had thought that this quarter would finally show some accelerated growth, but we were clearly wrong.
At the same time, we still believe that the downside in the stock is minimal at current prices. The company is generating in excess of $85 million a year in cash-flow and sitting on about $230 million in cash with no debt (after the Port Authority acquisition). With M&A activity in the security software sector at high levels, it’s difficult to see how the stock could trade for an any extended period at lower than 10X EV/Free Cash-Flow or about $1.1 billion. This valuation would equate to about $22 to $23 per share.
Admittingly, our call on this stock has been wrong thus far and our entry point was ill-timed. However, given the above financial risk analysis, we plan to have some patience here for at least a few more quarters.
Disclosure: We hold shares in WBSN, and recommended them to subscribers at a price of $25.50. In addition, this report includes market analysis. 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 or in any particular stock. 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. We maintain no legal responsibility to update this report or his holdings in the stock mentioned in this report.
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This site may include market analysis and we may own shares in the stocks mentioned in our reports. 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.
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