Through The Fly's Eyes: NetScout Systems

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.














Quantifying Your Network Performance

When you want to gauge the efficiency of a computer network, it makes sense to monitor its performance at various points along the way. A leading provider of products designed to collect and analyze such information is headquartered in Westford, Massachusetts.

NetScout Systems (NTCT) provides a family of integrated software and hardware products that enable an enterprise to monitor the performance of its computer network. Administrators place NetScout monitoring appliances throughout the network and then use associated software to collect information about traffic flow to optimize efficiency. The products ensure that critical business applications such as e-mail, Voice over IP, supply chain management and customer resource management run effectively and reliably. The firm works with such strategic partners as AT&T (T). Verizon Communications (VZ) and Merrill Lynch (MER) are major customers.

The company pleased investors about two weeks ago, when it raised its Q2 EPS guidance to 9-10 cents and revenue guidance to $29-$30 million. Analysts had been looking for 8 cents and $28.33 million. The CEO cited increased demand across the firm's various markets for the upside view. Also, the company announced that it would acquire network management hardware firm Network General for $205 million. NetScout officials anticipated that the combined firm would enjoy significant cost savings, better operating margins and improved EPS. Brean Murray subsequently reiterated its "buy" rating on the shares and boosted its price target to $15.

The news popped the shares out of an early September "cup" into the late September "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".

Brokers recommend the issue with two "strong buys" and one "buy". Analysts see a 33% growth rate, through the next year. The NTCT Price to Sales ratio (3.32), Price to Book ratio (2.48), Sales Growth rate (18.22%) and EPS Growth rate (100.00%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 59% of the outstanding shares. Over the past 52 weeks, the stock has traded between $6.44 and $11.36. A stop-loss of $9.60 looks good here. Note that the firm is expected to report fiscal Q2 results on October 25th, after the close.