Why Zix Is Poised to Keep Popping

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, email encryption specialist Zix (NASDAQ: ZIXI  ) has earned a coveted five-star ranking.

With that in mind, let's take a closer look at Zix and see what CAPS investors are saying about the stock right now.

Zix facts

Headquarters (founded)

Dallas (1983)

Market Cap

$243.9 million

Industry

Internet software and services

Trailing-12-Month Revenue

$44.8 million

Management

Chairman/CEO Richard Spurr

CFO Michael English

Return on Equity (average, past 3 years)

14%

Cash/Debt

$24.2 million / $0

Competitors

Cisco Systems

Proofpoint

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 70% of the 791 members who have rated Zix believe the stock will outperform the S&P 500 going forward.

Just yesterday, one of those Fools, DCHomer13, succinctly summed up the Zix bull case for our community:

High renewal rate with customers. Email is becoming more frequent and at the same time people are starting to be more wary (NSA) of their Internet security. Zix Corp stands to capitalize on this combination through their secure email encryption software.    

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a perfect five-star rating, Zix may not be your top choice. Perhaps you're interested in major tech heavyweights.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2013, at 3:52 PM, StiffArm111 wrote:

    This recommendation completely ignores realities.

    1. Zix itself says that revenues will decrease this quarter for the first time in history.

    2. Zixi P/E at 28 is twice the S&P 500 average

    3. Zixi will have to pay unknown royalties going forward in a recent patent settlement. As it was, zixi profits was only .01 per share last quarter

    4. Zixi profits rapidly dropping compared to last year

    5. Zixi is locked into OEM agreements with industry giants, who can squeeze them anytime they want

    6. Email encryption is so dated. It's been around for 20 years, is free on MS outlook and dozens of other systems. All google email accesses are automatically encrypted via https. Demand is dying.

    A silly post by a zix shill.

  • Report this Comment On June 15, 2013, at 4:05 AM, RainierWrangler wrote:

    I happen to like ZIX, but think that the valuation is VERY rich. It is important to understand that they have had enormous releases of their valuation allowances for prior tax losses in the past 3 years and that those do not represent earnings per se. If you eliminate the tax benefits releases they earned $5.2, $10.7 and $9.1mm pre-tax in each of the prior three years 2010, 2011 and 2012. If you were to apply a normal tax rate of 35% to these pre-tax numbers you would wind up with $3.4, $7 and $5.9 as their fully-taxed net income (which is what would normally use to compare them to other companies and also for analytical purposes.) These after-tax earnings equate to $.05, $.11 and $.10/share earnings on a "normalized" basis. This would leave them at around a 40 multiple based on recent earnings and they have already telegraphed that they are investing for the next few quarters in their new products and enhanced marketing, so no reason to believe that 2013 will be better than the $.10 and I think it may come in lower.

    Again, like the company, but the valuation tends to be very high as people ignore the prior benefits to their bottom line from taxes.

    They DO have huge tax assets which will help them translate their earnings into cash flow in future years, but if someone were to look at them as an acquisition the tax asset would have to be heavily discounted as it could only be applied at a very modest rate once there was a change in any significant % of their ownership.

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