Internet Security Systems' Bad Hair Day (ISSX)

Apr.10.06 | About: Internet Security (ISSX)

Ah, the joy of cutting guidance. Internet Security Systems Inc. (NASD:ISSX), which protects business and government servers, desktops and networks from online attacks, said that it would miss its Q1 goal. The previous low end of guidance for revenue was $82 million and $80 million looks like all that the company could come up with for the period ending March 31. In the period a year ago, revenue was $76.8 million. GAAP EPS is expected to rise very slightly. According to Briefing.com, JP Morgan downgraded the stock from Neutral to Underweight and the dung hit the fan.

ISS stock, which had been at the high end of its 52-week range, up over $25, was flogged like a mule down to about $21. But, this is a stock that has come a long way from $16.44 last April:

Revenue has grown nicely over the last three years from $245.8 million in 2003 to $289.9 million in 2004 to $329.7 in 2005. The company had positive operating income in each year. In 2005, revenue rose each quarter when compared to the immediately previous quarter, and Q4 05 revenue hit $91 million with operating income of $18.8 million. The company has a swell cash position of $238 million and a nifty balance sheet.

It looks like the company's string of quarter-over-quarter growth is over. Morningstar puts ISS in a competitive group that includes Symantec (NASD:SYMC), Cisco(NASD:CSCO), and Checkpoint (NYSE:CHKP). Tough crowd.

The miss was not huge, but investors should be wary that the company said nothing about the reason for the shortfall. To that extent, Wall Street is in the dark.

Until ISS is a bit more forthcoming about its current problems, the shares still seem on the expensive side at more than three times sales.

ISSX 1-yr Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at douglasamcintyre@gmail.com.

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