Foolish Forecast: You Need VASCO

Up-and-coming data security specialist VASCO Data Security International (Nasdaq: VDSI  ) will report fourth-quarter earnings Thursday morning. Is this an exciting investment opportunity or an overpriced hype machine? Let's find out together.

What Fools say:
Here's how VASCO's CAPS score rates against some of its peers and competitors.

	Market Cap (Millions)	Trailing	CAPS Rating
EMC (:EMC)	$32,481	20.1	*****
Check Point Software Technologies (NASDAQ:CHKP)	$4,778	17.5	****
VASCO	$651	28.6	*****
Secure Computing (NASDAQ:SCUR)	$572	N/A	*****
Aladdin Knowledge Systems (NASDAQ:ALDN)	$315	21.0	****

Data taken from Motley Fool CAPS on 2/18/08.

Oh, my! The four largest information-security companies include two Foolish newsletter picks and rate an average of 4.75 CAPS stars. Why is this sector so steamin' hot?

All-Star CAPS player Onestroke calls VASCO a no-brainer, because it offers "much needed security in today's information age. Good for the long haul." The bears tend to glorify the competition rather than vilify VASCO itself, an argument that's akin to calling the company a laggard only among superior peers.

What management does:
If competitors are doing better than this, they surely deserve all the kudos they get. But nobody can match this combination of growth and efficiency:

Margins	6/06	9/06	12/06	3/07	6/07	9/07
Gross	64.3%	66%	68%	67.3%	66.8%	66.5%
Operating	21.5%	23.4%	24.9%	25.8%	27.5%	27.7%
Net	14.2%	15.3%	16.5%	18.5%	19.7%	20%
FCF/Revenue	7.6%	16.5%	9.7%	11.9%	18.5%	18.7%

Y-O-Y Growth	6/06	9/06	12/06	3/07	6/07	9/07
Revenue	55.6%	47.6%	39.4%	56.2%	63%	66.6%
Earnings	89.5%	99%	63.4%	119.5%	126.6%	118%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
For my money, it's either a growth opportunity like VMware (NYSE: VMW  ) , or a buyout candidate of TIBCO's (Nasdaq: TIBX  ) caliber. Either way, there should be substantial rewards ahead for those who buy in at today's ridiculously low prices. A price-to-earnings ratio of less than 30 looks miserly next to the growth figures above.