Keynote Systems: Cash-Rich Cloud Player Is 40% Under Price Targets

| About: Keynote Systems, (KEYN)

Given the rally over the last few months, bargains are harder to come by. One stock I recently came across that I like because of its accelerating sales growth, cash rich balance sheet and reasonable valuations is Keynote Systems (NASDAQ:KEYN).

"Keynote Systems, Inc. provides Internet and mobile cloud monitoring and testing solutions worldwide. The company's Internet cloud products and services comprise Transaction Perspective for visibility into the performance and availability of Web transactions; Application Perspective, a Web application monitoring service; Cloud Application Perspective that provides software-based performance monitoring; Private Agents for the performance of mission critical extranet and intranet applications; Streaming Perspective to measure, compare, and assure the performance of audio and video streams; and Performance Scoreboard, a custom dashboard to monitor Web performance." (Business Description from Yahoo Finance).

7 Reasons to buy Keynote Systems at $19 a share:

  • The company has a fortress balance sheet with almost $6 a share in net cash.
  • The stock is selling at the bottom of its five-year valuation based on P/E and P/CF.
  • The company sells for a five-year projected PEG of less than 1 (.93) and also yields 1.2%.
  • Google (NASDAQ:GOOG) just selected Keynote to test user experiences at thousands of clients' mobile websites. This is a significant win for the company.
  • It is under analysts' price targets. The median analysts' price target is $28, 40% under its current price level.
  • After averaging only 8% sales growth over the last five years, Keynote's revenue growth is accelerating. It is projected to grow sales over 25% in FY2012 and over 10% in FY2013.
  • Given its low market capitalization ($350mm) and increase M&A activity in the "Cloud" space; it is easy to imagine Keynote as a bolt-on acquisition for a larger player.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KEYN over the next 72 hours.