Thursday, February 21, 2008

Vasco's Growing Pains

Already jittery investors jumped ship today as Vasco Data Securities (VDSI) reported another quarter that missed analysts estimates. Is this the end of the road for VDSI? Well, let's take a look at the numbers, because after all they should mean at least something, even in a crazy market like this one.

In the full year ended December 31, 2007 Vasco’s revenues grew 58% to $120 million, from $76.1 million. Net income rose 67% in 2007 to $21 million, or 55 cents per diluted share, from $12.6 million, or 33 cents per diluted share, in 2006. Vasco Data Securities total sales for the fourth 4th quarter increased 24% to $31.2 million from $25.2 million. Maybe the most assuring statistic is that Vasco won 651 new customers. All of these statistics were within Vasco's management's projections, but still this was not what the analysts anticipated. If you step back and look at these numbers on a yearly basis, it really looks quite cheap. After all VDSI is now trading at a 21 P/E ratio.

So why did they miss? Well, a higher than expected tax rate certainly didn't help things. A tax rate of 49 percent in the 4th quarter, compared with the 28 percent reported in the previous nine months really hit the bottom line. Not only this, but management emphasized that a delay in shipments worth approximately $3.6 million have now been moved to the next quarter. Don't forget Vasco is expanding in several locations around the world, and this is impacting the bottom line as well by increasing expenses.

Still should I be sitting here defending this company after they hurt so many investors the past two quarters? This stock has been in a downward spiral since reporting it's last earnings three months ago and any new investors to this stock must be sweating bullets. Needless to say, if you didn't buy all at once this could be considered an opportunity. I personally still believe they have a lot of long-term value, and I will actually be adding to my position at these levels. Either I am just glutton for punishment, or I think the future for Vasco and online banking security still looks bright, you decide for yourself...

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