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In this week's Barron's, technology writer Bill Alpert tips microcap network equipment company Allot Communications (NASDAQ:ALLT). Allot provides deep packet inspection [DPI] equipment that broadband providers use to prioritize IP packets. For example, the equipment might determine that scanned packets containing BitTorrent traffic should get a lower priority than e-mail. Alpert thinks the market for that equipment will soar as net neutrality issues are resolved, and that Allot's current "bargain basement price" leaves a lot (get it?) of upside.

It doesn't take a master chart reader to see that Allot has lost about half of its value since its IPO last year. At current prices, ALLT sports a market cap. of $146.4M and an enterprise value of only $68.9M, due largely to cash received in the 2006 offering. Recently, shares took a big hit when the company lowered Q1 revenue estimates by about 15% and projected revenues of only $40M for 2007. "We were disappointed with the performance of some of our distributors during the quarter which may result in slower than expected growth throughout the year,'' said Rami Hadar, Allot's President and CEO. "We are encouraged, however, by the progress we have made in larger accounts and the growth we saw in sales to these accounts during the quarter, both in terms of number of projects and sales. Overall, we remain confident in our strategy and on the long-term outlook for our DPI products on a global basis.''

For the fourth quarter of 2006, Allot was barely profitable on a GAAP basis. I'm not sure if the company will be able to stay in the green with less revenues in Q1 2007.

If Alpert is right and demand for DPI equipment is about to soar, Allot should benefit. He points out that it trades at a much lower EV/S than its only other pure play publicly-traded competitor, Canada's Sandvine Networks.

Bottom line: Allot's cash hoard should provide some downside protection, but it's a bit early to proclaim that the stock has carved out a bottom. I'm adding this to my watchlist now, but not my portfolio.

DISCLOSURE: I have no position in ALLT or Sandvine Networks.

allt chart

Source: Alpert's Pick Allot Communications: A Closer Look