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SeaChange International (NASDAQ:SEAC) is a fallen angel from the dot.com craze a decade ago. Back in 2000, it traded as high as $76/share and, after staggering down to $5 in 2002, has basically dithered in a range of $5-$10 except for a brief run up to $20 in 2004. Many investment experts say to avoid stocks under $10 (most notably Investor's Business Daily), but I believe that some securities trading in the single digits are worth an examination. Apple (NASDAQ:AAPL) was selling as low as $6 in 2003 and look where it is now. I am not suggesting an underdog like SeaChange will rise to the heights that Apple has, but it may be in store for a second act, and we could see a renaissance in price.

I don't like to kick a stock when it's down, but SeaChange is so unloved and down on its luck that only three analysts cover it - two with favorable ratings and one a hold, according to Yahoo Finance. To compound matters even worse, the company just released fourth quarter and full year earnings for 2011 and Wall Street lowered the boom. The stock was down 7% to $8.65 in after hours trading immediately following the conference call. It has since bounced back 20 cents in the last two days. No great shakes.

So what do I see so promising in it? Well, the future.

SeaChange is the global leader in selling video-on-demand (NASDAQ:VOD) hardware and software systems to large, worldwide cable and telecommunications companies like Comcast (NASDAQ:CMCSA), Cablevision (NYSE:CVC), Cox Communications, Virgin Media, Rogers (NYSE:RCI), Viacom (NASDAQ:VIA), ABC Disney (NYSE:DIS), Clear Channel and China Central Television. If you haven't seen a retail video store like Blockbuster or Hollywood Video of late, it is because of disruptive technology like SeaChange's VOD systems that made their business models obsolete. Why take a trip to the store to rent a movie when you can get it in your living room with just a click of the remote control?

Another business segment that SeaChange excels in is local spot ad insertions into national broadcasts. In fact, 70% of operators use Seachange's ad insertion system, and this type of target marketing is only going to evolve as not only Big Brother collects more and more personal information about you, but as the television and Internet begin to merge. Going forward, all viewing will be on an interactive basis. It's happening already to some extent.

Not only will the company's interaction with the television increase profits in the upcoming years, but another growth driver is its expansion into what is now being dubbed as a multi-screen offering by customers, i.e., personal computers, tablets and smartphones. In a 12/9/2010 conference call, president Yvette Kanouff stated: "Across every single operator they are very serious about doing multi-screen. The 90% priority is the PC as the second screen, more so than mobile."

With SeaChange's new Adrenaline platform, they will be able to offer middleware for carriers that wish to launch multiple screens such as the iPhone, iPad and Android. It's only a matter of time before these telecommunications companies and cable operators become larger by offering considerably more content for mobile devices. If past performance and continuing business relationships are a factor, then SeaChange will be a benefactor in this development.

In examining its 10-K, SeaChange sounds like a stock that is ready to make an incendiary move upwards. The only problem is, all high-tech companies' annual reports sound like their products are the next great thing with all of the colorful acronyms they employ. Let's face it, SeaChange has experienced trouble executing. This is why the stock is so inexpensive and can't beat the street's expectations.

There are many reasons the stock has flatlined the last 10 years. One good reason: The company made many acquisitions to solidify its position as a worldwide industry leader which put pressure on profits. The other is not so good in that its hardware division is in the red and puts a drag on earnings. They are attempting to combat this situation by recently releasing Axiom, software that is independent of their hardware that can be deployed to third party hardware platforms. I believe this is a step in the right direction toward increased profitability.

In its current composition, SeaChange derives 65% of sales from software, 25% from hardware and the remaining 10% from media services which along with software is growing rapidly. According to a recent ValueLine report, international sales represent 45% of revenues with demand the strongest in Europe and the Middle East. Although they do business in Japan, it is not a large enough part of their business to have a huge impact on profits because of the current crisis. But I surmise it may have a minute ripple effect on revenues to a small degree in the next year. I really like the fact they commit 25% of revenues to R&D. That borders on the high side for a company of any size, but is what a smaller high-tech company wants to do when they are in innovation mode and need to compete against competitors with deeper pockets. SeaChange's largest rival is Cisco (NASDAQ:CSCO).

On a valuation level, SeaChange looks very compelling at roughly $8.75/share. Bear in mind that because of the lack of analyst coverage, I am using ValueLine statistics to compute the numbers: price/sales is 1.1, price/book equals 1, price/cash flow comes out to 8.5 and price/earnings is a reasonable 14. That's a value stock. However, it needs to get a grip and execute before it might force a shift in investor sentiment and send the stock higher. This, coupled with the fact that the market as a whole may be under pressure in the near term taking the stock lower, makes me want to sit on the sidelines for the time being. With its market leading position in its flagship products, this stock has more than a puncher's chance.

Source: SeaChange International: Stock Preparing for a Second Act?

Additional disclosure: Am short the market with inverse ETFs.