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What is EBITDA? It's an indicator of a company's financial performance, which is calculated via the following:

It's a good metric to evaluate profitability, but not cash flow, as it leaves out the cash required to fund working capital and the replacement of old equipments known as Capital Expenditures or CAPEX, which can be a significant cash expense, not recorded in the Income Statement. Therefore EBITDA - CAPEX is a more practical assessment of earnings that with just EBITDA.

It's important to note here that since interest is excluded from EBITDA, EBITDA - CAPEX should be used in ratio with the Enterprise Value (EV).

Enterprise Value = Market Capitalization +Debt -Cash and Cash Equivalents.

Ideal Valuation Ratio = EV / EBITDA−CAPEX

Following are the stocks in the Security Software & Services Industry With Positive EBITDA-CAPEX Margin.

AsiaInfo-Linkage (ASIA)

Provides telecommunications software solutions and information technology products and services to telecommunications carriers and operators, and cable television operators in the People’s Republic of China. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 30, 2012:

Source SEC Filings

The company reported EBITDA in LTM of approximately $63M. However, it also incurred an average cash expense in the form of Capital Expenditure of $13M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 63-13 = $50M or with a margin of almost 10% on revenue of $513M.

As of SEPT. 30 2012, the company had 73M shares outstanding on a fully diluted basis. It also had $250M in Net cash and cash equivalents on hand. Using PPS of $10.75 from the chart below, the EV value of the company will be:

EV = 10.75*73 - 250 = $535M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 535/50 or 10.70

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

Brady Corp. (BRC)

Provides identification solutions and specialty materials in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. A look at the company's financial performance for the Trailing Twelve Months ending Oct. 31, 2012:

Source SEC Filings

The company reported EBITDA in LTM of approximately $210M. However, it also incurred an average cash expense in the form of Capital Expenditure of $38M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 210-38 = $172M or with a margin of almost 13% on revenue of $1300M.

As of OCT. 31 2012, the company had 51.5M shares outstanding on a fully diluted basis. It also had zero net debt. Using PPS of $33.75 from the chart below, the EV value of the company will be:

EV = 33.75*51.5 = $1738M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 1738/172 or 10.10

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

Check Point Software Technologies (CHKP)

Develops, markets, and supports a range of software, and combined hardware and software products and services for information technology security worldwide. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 30, 2012:

Source: SEC Filings

The company reported EBITDA in LTM of approximately $754M. However, it also incurred an average cash expense in the form of Capital Expenditure of $7M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 754-7 = $747M or with a margin of almost 56% on revenue of $1330M.

As of Sept. 30, 2012, the company had 207M shares outstanding on a fully diluted basis. It also had $3200M in cash and cash equivalents and marketable securities on hand. Using PPS of $49 from the chart below, the EV value of the company will be:

EV = 49*207 - 3200 = $6940M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 6940/747 or 9.3

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

The KEYW Holdings Corp. (KEYW)

Provides mission-critical cyber security and cyber superiority solutions to defense, intelligence, and national security agencies in the United States. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 30, 2012:

Source: SEC Filings

The company reported EBITDA in LTM of approximately $27.5M. However, it also incurred an average cash expense in the form of Capital Expenditure of $7.5M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 27.5-7.5 = $20M or with a margin of almost 9% on revenue of $220M.

As of SEPT. 30 2012, the company had 35M shares outstanding on a fully diluted basis. It also had 52M in cash and cash equivalents on hand. Using PPS of $12.5 from the chart below, the EV value of the company will be:

EV = 12.5*35 - 52 = $386M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 386/20 or 19.3

Though a number below 15 indicates healthy cash flow (excluding working capital changes), KEYW is expected by the analysts to grow significantly next year, which will result in the YOY% increase in EBITDA, and based on this growth I expect valuation ratio to improve next year, I therefore recommend buying this stock.

(click to enlarge)

Source: Yahoo finance

ManTech Int. (MANT)

Provides technologies and solutions for national security programs in the United States and internationally. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 30, 2012:

Source SEC Filings

The company reported EBITDA in LTM of approximately $260M. However, it also incurred an average cash expense in the form of Capital Expenditure of $11M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source SEC Filings

Therefore the company has EBITDA-CAPEX of 260-11 = $249M or with a margin of almost 9.5% on revenue of $2640M.

As of Sept. 30, 2012, the company had 37.5M shares outstanding on a fully diluted basis. It also had Zero Net Debt. Using PPS of $26 from the chart below, the EV value of the company will be:

EV = 26*37.5 = $975M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 975/249 or 4.0

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

Symantec Corp. (SYMC)

Provides security, storage, and systems management solutions to various organization and consumers worldwide. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 28, 2012:

Source SEC Filings

The company reported EBITDA in LTM of approximately $1820M. However, it also incurred an average cash expense in the form of Capital Expenditure of $360M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 1820-360 = $1460M or with a margin of almost 22% on revenue of $6760M.

As of Sept. 28, 2012, the company had 710M shares outstanding on a fully diluted basis. It also had $1000M in Net cash and cash equivalents on hand. Using PPS of $20.50 from the chart below, the EV value of the company will be:

EV = 20.50*710 - 1000 = $13555M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 13555/1460 or 9.30

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

7-VASCO Data Security Intl. (VDSI)

Designs, develops, markets, and supports hardware and software security systems that manage and secure access to information assets worldwide. A look at the company's financial performance for the Trailing Twelve Months ending Sept. 30, 2012:

Source: SEC Filings

The company reported EBITDA in LTM of approximately $30M. However, it also incurred an average cash expense in the form of Capital Expenditure of $1.5M, which was not recorded in the Income Statement, as shown in the Cash Flow Statement below:

(click to enlarge)

Source: SEC Filings

Therefore the company has EBITDA-CAPEX of 30-1.5 = $28.50M or with a margin of almost 17% on revenue of $164M.

As of SEPT. 30 2012, the company had 39M shares outstanding on a fully diluted basis. It also had $90M in Net cash and cash equivalents on hand. Using PPS of $8.00 from the chart below, the EV value of the company will be:

EV = 8*39 - 90 = $222M

(click to enlarge)

Hence the Ideal Valuation Ratio of the company will be:

EV / EBITDA−CAPEX = 222/28.50 or 7.8

A number below 15 indicates healthy cash flow (excluding working capital changes), I therefore recommend buying this stock.

Source: Secure Your Portfolio: 7 Security Software And Services Stocks With Positive EBITDA - CAPEX Margin