GlobalSCAPE (GSCP.OB), a provider of Global Managed File Transfer [MFT] solutions and wide-area file services [WAFS] technologies, delivers a modular approach to solving the enterprise challenges of security, bandwidth, latency and regulatory compliance. GlobalSCAPE’s products securely and efficiently move files such as financial data, medical records, customer files, intellectual property, and other sensitive documents of any size between supply chain partners and branch offices. GlobalSCAPE’s products are used by mid-sized and large enterprise companies, including virtually all of the Fortune 100, leading technology, banking, healthcare, and public sector organizations. Headquartered in San Antonio, Texas, GlobalSCAPE is also the developer of CuteFTP, the most popular file transfer protocol application on the market.
GSCP has experienced a large amount of growth from 2004 - 2006, with an 800% increase in net income over the course of those two years, which explains why its share price has increased from a slim .15 cents/share in early 2005 to yesterday's close of 4.19, equating to a staggering 2700% gain. Currently, GSCP is trading at a 37.08x earnings multiple, compared to the software programming industry average of 27.5x, making its current valuation extended. Though given a low forward P/E of just 12.32x, less than 1/2 the industry average, investors and traders aren’t hesitant to continue to drive price action in favor of the bulls.
For the current year 07′, GSCP is expected to report revenues of 20.34m on .3 eps, which entails an 85% increase in revs and 87% increase in eps from the prior year 06′. As we head into 2008, the high growth story is expected to slow to down to around 16% annual change. Though given the future growth into 07′ and 08′, and GSCP currently just a small company at $72m cap, I think price will continue to trend up, especially given the current technical setup. As GSPC expects to report eps of .34 in 2008, we could hypothetically say that GSPC should be trading around $8 - $9/share in the coming months to be fairly valued in the software programming industry. As the industry average P/E is currently trading around 27x earnings and GSPC is expecting .34eps in 2008 (.34 x 27) ,GSCP should be trading around 9.18/share in the future to be fairly valued in the software programming industry.
Being that software companies usually have very high margins, their ability to maximize income as revenue increases is staggering. In 2006, GSCP had a profit margin of 95% while their net margin was just 17%. But as revenues increase dramatically(85%), their profit margins will likely remain similar, while net inc margins increase significantly. This is because SGA and RD aren’t increasing nearly as much as revenues, which in turn causes the increased revenues go straight to income. This is why earnings for 07′ are increasing 87% when revenues have increased 85%. As revenues grow in the future, the majority of the increase in revs will go strait into net income.
Looking at the 3 year weekly chart GSCP looks extremely bullish as price first broke out of its descending wedge pattern on heavy volume. Since then it has consolidated and now has broken out to its all time high close as we are in midweek.
Looking at the shorter term chart, GSCP has had a huge momentum run from a low near $2/share to over $4/share as of todays closing price. Price formed a small symmetrical triangle pattern which had an upside breakout today on above average volume confirmation suggesting a continuation north. Currently price is down to around 4.12 AH, i would like to pick up some shares near the midpoint of todays candle and breakout point around $4/share.
Over all this looks like a great stock to speculate on as its technical setup looking at the longer term weekly chart is extremely bullish, along with a strong fundamental backing to supply buyers along the run.
Disclosure: Author has a long position in GSCP.OB