Allot Communications: Consistent Growth For 2012
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Allot Communications (NASDAQ: ALLT) has been trading in a range over the past year between $9 to $19 per share and is currently trading in the upper quartile of that range. If you look at a two year chart of the stock's price performance you will see what looks to be a cup with handle continuation pattern forming. The continuation is from the trend that was in process before a negative catalyst brought the stock down into the bowl formation or cup part of the formation. The catalyst in this instance probably being the company's announcement of a secondary stock offering that was originally thought to be dilutive to stock holders-- along with general market conditions at the time. The stock made its first attempt at a continuation about a week ago (from the handle part of the formation) when volume climbed 43% above its average but the momentum was not sufficient to carry the breakout to new highs. I think the trend will continue, and probably sooner than later, as the company's fundamentals are also exceptional and Allot Communications provides a portfolio of products that are superior to any of the company's competition.
The company's main publicly traded competitor in the industry is Cisco Systems (NASDAQ: CSCO). Although both companies have a five year expected PEG ratio of 1.27, Cisco System's year over year quarterly revenue growth of 10.8% doesn't come close to Allot Communication's year over year quarterly revenue growth of 36% or the industry average of 18%. Even though Allot Communications is much smaller than Cisco Systems, Inc. (with market capitalization of 494.6 million and 107 billion respectfully) the company has a much greater potential for growth, in my opinion, especially in the mobile market where it is in the leading position.
Speaking of growth, Allot Communications earnings per share and revenue have been growing consistently over the past year and beating analysts' estimates every step of the way. The company has beat analysts' estimates for the past five consecutive quarters. The company reported revenue of $22 million while the consensus estimate for revenue on the quarter was only $20 million. This figure represents a 36% increase over the fourth quarter of 2010 and a 10% increase from the $20.1 million in revenues reported for the third quarter of 2011. The company also reported earnings per share of $.14 while the consensus estimate was for only $.12 per share. This was $.02 per share higher than the third quarter of 2011 ($.12 per share) and 140% higher than the fourth quarter of 2010's earnings per share of only $.05. It should be noted that these figures were diluted by $.01 per share on the generally accepted accounting principles (GAAP) basis due to a secondary offering of shares which closed on November 15, 2011. In my opinion, these metrics show the company is growing at a considerable rate and the secondary offering did not dilute share holder value-- but in fact increased it through increased sales and profits. In other words the money was put to good use.
Sales and profitability significantly increased in the quarter and net profit nearly tripled for the full year of 2011. Net profit for the fourth quarter of 2011 came in at $3.5 million compared to a net profit of only $1.3 million in the fourth quarter of 2010. For the full year of 2011 revenues came in at $77.8 million, a 36% increase over the revenues of only $57 million for 2010. These figures will only increase in the near term as the company's mobile products become more of a necessity for the telecommunication (broadband) providers, in my opinion. In September of 2011 Allot Communications picked up a Service Gateway Tier 1 European LTE deployment and most recently announced a follow-on order from an Asian Tier 1 mobile operator to support an LTE network rollout. Both of these markets represent significant growth in both mobile broadband and the demand for the company's portfolio of networking products, in my opinion.
Allot Communications attributes its strong growth in 2011 to its leading position in the mobile market. With video streaming accounting for 42% of mobile bandwidth in the second half of 2011 and instant messaging (IM) and voice over internet protocol (VoIP) communications increasing by 114% the company's intelligent internet protocol service optimization and revenue generation solutions products are and will be in high demand. Allot Communications products, in short, provide a multi-layered approach to traffic management. The software is based on the company's Dynamic Actionable Recognition Technology (DART) and provides network topology awareness, security, application control and subscriber management that are vital to managing internet service delivery-- containing operating costs, and maximizing revenue in broadband networks. Allot Communication's intelligent internet protocol (IP) optimization services help service providers to make certain that network costs do not over ride revenue growth. In addition, it ensures that the data-usage needs of all the providers customers are satisfied. In my opinion, with the growing worldwide demand for broadband, a network with an intelligence built in (or smartgrid, if you will) to funnel traffic over the most appropriate routes will prove invaluable to service providers. Allot Communications stands at the forefront of this technology-one of the many reasons why I recommending purchasing this stock.
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