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F5 Networks, Inc. Message Board

  • busy26795 busy26795 Nov 27, 2012 3:48 PM Flag

    QLYS from Briefing...a cloud IPO

    After hitting post-IPO lows on November 8, shares of QLYS -- a provider of IT security and compliance software -- have been plodding higher and have been slowing recovering from the sharp sell-off it suffered back in late October and early November. QLYS is a recent IPO that we remain positive on, so we wanted to point out this recent strength.

    After a fast start (QLYS went public on September 28), the stock began to slip ahead of its November 5 third quarter earnings report. QLYS did deliver a strong report, beating on both the top and bottom lines, but its in-line guidance for Q4 was likely viewed as a disappointment. It's also worth mentioning that during the Q3 earnings season, tech stocks were especially in investors' cross-hairs and these names certainly were not given the benefit of the doubt. So, while its quarterly numbers were above consensus and its growth rates were quite solid (revenue up 21%, operating income up 72%), the in-line guidance was a good enough excuse to dump the name.

    Following the sharp sell-off, on November 13 we published a report on QLYS titled, "Shaky Market For IPOs, But Risk-Reward Looks Favorable." The premise of the report was that QLYS was a name that we liked prior to it going public (assigning it a grade of "B") and that following its Q3 report, its fundamental picture hadn't changed and that the outlook remained positive. This created an intriguing opportunity to re-visit the stock.

    What specifically stood out is that the company has a lot of room for growth ahead due to its up-sell opportunity. More specifically, of QLYS' 6,000 customers, about 80% of them currently have only one product deployed. During its Q3 conference call, management described this as "the most exciting aspect to its story." In addition to that catalyst, its cheap valuation and rock-solid balance sheet were also clear strengths. On a forward basis, QLYS has a P/S of around 3.3x, pretty attractive for a company with ~80% gross margin that is consistently growing the top-line by +20%. The company has $100 million in cash, or $3.33/share, and no debt.

    t

    Sentiment: Strong Buy

 
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