Now That Everyone Has Downgraded Safenet... (SFNT)

Safenet (NASD:SFNT) runs a business that sits at one of the important crossroads of the digital industry. The company provide encryption technologies for communications, IP, and digital identities. They play in both the hardware and software segments of these businesses. And, they do it across an important spectrum of customers including work to protect government secrets.

The company has a staff of over 300 encryption engineers, which has to make it one of the larger pools of this kind of talent in the tech industry. Because this group builds solution for chips, and in hardware and software, Safenet is more of a "one stop shop" for encryption technology than most companies.

But, Wall Street has a beef with the company. After Safenet announced its Q4 2005 and full-year numbers, Stifel Nicolas, Kaufman Bros., and Wedbush Morgan downgraded the stock. As might be expected, the price per share got hammered from about $32 down to $24 on heavy volume.

Maybe investors should take an second look here. Revenue and EPS grew at an impressive rate for both the year and the quarter. If the company hits the high end of its guidance for 2006, revenue will grow another 18% year-over-year. And, this is a company that has signature customers like the Department of Defense, Tally Solutions (India's largest accounting software vendor), Digital River (DRIV), and Applied Micro Circuits (AMCC).

The company has also made a series of strategic acquisitions to improve its footprint and share in the encryption part of the tech world.

The stock trades at 2.3 times trailing twelve-month revenue. And, the stock is down 37% from its 52-week high.

A couple large customer wins and a good quarter, and this stock could trade right back in the high 30s.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard.com when it was the 10th most visited website in the world, according to MediaMetrix. He has also been chief executive of On2 Technologies, Inc. He does not own securities in the company covered here.