Second Look at Double-Take

For the year, the shares of Double-Take Software (Nasdaq: DBTK  ) have surged about 50% and have earned a five-star rating from the Motley Fool CAPS community, which has more than 60,000 members. But on the company's fiscal Q2 results reported on Tuesday, investors weren't satisfied with the growth rate and the shares fell 7% to $17.15.

Double-Take develops technologies to help companies recover from computer meltdowns; it has major distribution agreements with companies like Hewlett-Packard (NYSE: HPQ  ) , Dell (Nasdaq: DELL  ) , and CDW (Nasdaq: CDWC  ) . About half of the Fortune 500 companies use the software.

Q2 revenues increased 36.2% to $20 million and license revenues were up 24% to $12 million. The license revenues are critical, since they generally lead to higher maintenance and service revenues. As for net income, it was $7.5 million or $0.33 per share, which compares to net income of $100,000 or $0.02 per share in the same period a year ago.

Double-Take's software focuses mostly on Microsoft (Nasdaq: MSFT  ) environments. It's a big market with much more growth. Yet Double-Take realizes it needs to broaden the footprint. To this end, the company has built a version of its software for VMware, which is a fast-growing software company that plans to spin off from EMC (NYSE: EMC  ) . It also looks like Double-Take has other products in the works.

Management upped its full-year guidance from $78.5 million-$80.5 million to $81.1 million-$82.1 million. That means the company is trading at about 4.4 times revenues, which is in line with the valuations in the security sector.

For a company like Double-Take, results can be volatile. But looking at the next couple of years, the demand for its products looks fairly solid and there should be further innovation along the way. So while the stock slipped on Q2, the long term still looks rosy.

Take a second look at further Foolishness:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. CDW and Dell have been recommended by our Stock Advisor service, while Microsoft and Dell are picks from our Inside Value newsletter. The Fool's disclosure policy always saves its work in case of a meltdown.

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