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Cogent Systems (COGT), owner of the best biometric fingerprint technology, debuted auspiciously in 2004 on the expectation that it would reap government security contracts in a post-9/11 world. The $12 IPO shares peaked at $38, but are back to $12 again. One of its two principal revenue sources, the U.S. Homeland Dept., is cutting back. And of three current major contracts Cogent has bid on, the European Union's visa program was awarded to a French rival who undercut Cogent's reportedly $100M bid by 70%. Motorola (MOT) and NEC are also keeping price pressures up.

Earnings were flat in 2007, while sales grew 7%. The company predicts sales will grow 26% next year to $137.3 million, offering $0.46 EPS guidance. Cogent, however, has missed eight of its last nine quarterly projections, citing the vagaries of contract-driven revenue prediction. To meet revenue predictions, Cogent will have to win either the British border ID contract, or the U.S. fingerprint upgrade contract. Meanwhile, interest on its $331.7M reserves is shoring up earnings. In Q3, interest income of $5.8M equaled 80% of pretax profits. Company share buybacks aren't reassuring: CFO Paul Kim recently unloaded shares. Barron's says Cogent's $12 shares are still too pricey at 26-times earnings. They could be overvalued by 300%.

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Source: No Argument for Cogent - Barron's