Attunity's 200% Gain Illustrates How Triples Are Found

| About: Attunity Ltd (ATTU)

The hits keep coming for the Poised To Triple portfolio of stocks we've been presenting on Seeking Alpha. On September 5, we celebrated our 200% return on Lions Gate (LGF). On September 28th, shares of Himax (NASDAQ:HIMX) traded at $10.88, representing a 216% gain over our $3.44 initiation price. It marked the 14th of our 22 core picks to either double, triple, or get acquired since we started contributing to Seeking Alpha in 2009.

This week, our 15th triple emerged in the form of Attunity (NASDAQ:ATTU). We introduced ATTU in April of last year, when the shares traded at just above $3.36. On Monday, they hit a 52-week hit of $10.11, representing a gain of more than 200%.

Of course, this raises the million dollar question, "Who's next?"

The real question is, "How do we find who's next?"

It all comes down to employing a deep research process.

Looking at ATTU, a deep dive into its opportunity and competition shows that its story is just starting to unfold. Our recent interview with CEO Shimon Alon revealed that the company has been making great progress as a best-of-breed supplier of infrastructure for Big Data. His words confirmed weeks of data we compiled from numerous industry experts. Here's what we found:

For starters, ATTU delivers its offerings on-premise or via the cloud. Its emergence has stemmed from an accelerating shift in how architectures and approaches for integrating data are moving from batch (characterized by high latency), to real-time paradigms.

For example, ATTU provides its solution and support for pushing data into Amazon's (NASDAQ:AMZN) cloud offerings, specifically the Redshift Data Warehouse. Our contacts are seeing strong interest in Redshift, which bodes well for Attunity's growing visibility in the marketplace. ATTU is also working with a host of other Big Data heavyweights, including EMC/Greenplum (EMC), HP (NYSE:HPQ), Oracle (NASDAQ:ORCL), and Microsoft (NASDAQ:MSFT).

The company hit a speed bump in Q1 due to internal execution issues, but remedied them in Q2. Improved sales processes and a brand new CMO have been put in place. The results have given management the confidence to plan for a sales headcount increase from 16 to 25 in the coming quarters.

Looking at ATTU's addressable market, their segment is known as "integration platform as a service" or "cloud-based integration". Gartner Group is saying that it will be a $3 billion market by 2017, double its current size. We believe that ATTU, from its current base of revenue can grow at twice the market rate (in other words, 30%).

Most of that growth can flow to the bottom line, because half of its revenues represent pure royalties from its tier-one partners. As a result, its operating margins are capable of going well above 20%.

There are others vendors in the vicinity of what ATTU does, but none are so explicitly focused on file-based replication. Our research indicates that they could see competition emerge, as managed file transfer vendors move to cloud. In addition, vendors like Oracle and Informatica (NASDAQ:INFA) have the ability to eventually evolve their replication technology to the cloud. However, Attunity has first-mover advantage and a who's who of Big Data partners.

For what it might take to catch up on R&D and momentum, we believe there are a plethora of vendors that might opt to acquire the company. Most of ATTU's partners would make sense (in order to gain an key advantage in competitive situations). An analytics vendor like SAS (privately-held) would also make sense. ATTU's replication functionality is something that SAS doesn't offer in any significant way at present.

Teradata (NYSE:TDC) is another. The way the IT market is moving, we view database vendors as being at risk. Those vendors need to add value a layer up in the stack (like helping customers get data in and to provision data out).

Finally, we would view Datawatch (NASDAQ:DWCH) as a strong candidate. DWCH is establishing itself at the forefront of real-time Data Analytics. The company could pose a challenge to Tableau (NYSE:DATA) and QlikTech (NASDAQ:QLIK) as customers begin adopting real-time analytics in earnest. Acquiring ATTU would add another real-time asset and help DWCH to attain critical mass.

While the industry players mull a possible acquisition, investors have the opportunity to stake a claim via the public markets. If the company delivers 30% growth and 20% operating margins, Attunity could deliver 65-cents of EPS in two years and still be growing its bottom line by more than 50%. With a PEG ratio of one, the stock would reach $30. To be more conservative, we can cut that number in half and still derive a valuation in excess of $15 per share.

This analysis provided a complete view of the industry's key players, courtesy of PTT Research. Wall Street customers demand this level of depth, because it often makes the difference between a big winner and a big loser. Performing this work is time-consuming, but it's crucial key to finding stocks that are poised to triple.

Disclosure: I am long ATTU, DATA, DWCH, HIMX, INFA, LGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.