I've been looking at Secure Computing (SCUR) lately, and I must say that I'm a little confused.
Secure is the largest stand-alone computer security company around (or at least, the largest "pure play" on computer security). It was the inventor of the firewall, which was developed for government systems, back when the company was a piece of Honeywell (NYSE:HON), and its firewall has never been breached. As a result, it got a lot of government business, and a lot of attention from [IT] managers looking to buy stronger security products to protect networks.
It also has related solutions for computer security headaches - including some very strong email spam (with their IronMail product) and malware prevention systems that, from what I can tell, work very well.
And that's why, in an era of steadily increasing focus on computer security and recognition that this is likely to be a key spending point for [IT] departments, that Secure Computing has gotten a lot of attention from the business press.
The Motley Fool is head over heels for SCUR. Barron's ran a very favorable piece a few weeks ago. Talking heads on CNBC have talked it up on several occasions over the last month or two. Goldman Sachs even upgraded the shares last week (though to be fair, there have been more downgrades than upgrades of late, and this upgrade was just moving last month's sell up to a neutral).
And still, the stock doesn't really move. I'd generally expect a small cap like this that gets some sustained press attention in a compressed time period to react favorably, but there seems to be a bit of a hangover from when SCUR shares spiked up to near $10 or so in February.
Admittedly, SCUR is well above where it traded most of last fall, but over the past two months as fan after fan has publicly professed his love, nothing has happened. The shares are still right around $8, which is where they were in the beginning of March before this love fest really took hold.
So, who's right? Is it the investors or the investment press? Generally, you'd have to think the market is right - at least, if you believe in the Efficient Market Theory. The market must know something that the journalists don't, or perhaps the journalists are being disingenuous, or are even being led astray by the investors they interview.
But in this case, I'm inclined to say that I think the market might be wrong. In the long term, at least.
If you agree that the general trend is for increased security needs, you accept that SCUR billings might not move in a straight line even as it shows/demonstrates strong overall growth, and you note that the company is entering what is expected to be a profitable year (forward PE of 18 or so) after digesting a big acquisition, I think the timing might be right for me to pick up some SCUR shares.
And as a fallback, it is important to point out that this company is the small fish in the overall industry and could be a hugely strategic takeover candidate for many larger firms that don't have effective security offerings. So, there's always that takeover potential as well. And I suppose one can't also rule out private equity, though SCUR does carry a bit of debt (about 15% of market cap, last time I checked) so perhaps it's not the ideal private takeout target.
The company announced that "billings" were a little shy of the forecast when they released earnings last week. The earnings were also a little disappointing, which was good for shaving about 50 cents off the price of the shares. But it sounds to me like this is a potential opportunity to buy a long term growth trend at a little bit of a better price. I'll be keeping an eye on these shares for a possibly buy.
SCUR 1-yr chart
Disclosure: The author does not own SCUR.