Is VeriSign Still a Bargain With Its Recent Success?

Internet registry and infrastructure company VeriSign (NASDAQ: VRSN  ) received big boosts with the announcement that Warren Buffett's Berkshire Hathaway had added to its position, while Stephen Mandel's Lone Pine Capital had held nearly 12 million shares as of March.. The company had been suffering from pricing issues (regulators blocked a price hike late last year), but has since gone on to rally near its 52-week high. Back in July, it posted a positive earnings report and beat analyst estimates. There's little question that VeriSign is doing (and is set to continue doing) well, but has the value been snatched up? Let's take a closer look to find out.

Encouraging numbers
If VeriSign's recent earnings report is indicative of what is to come, there's little for investors to worry about. The company posted 12% revenue growth to $239 million, with the adjusted bottom line coming in at $0.58 per share, compared to $0.45 per share in the same quarter of 2012.

Operating margin jumped substantially, from 54% in the year-ago quarter to 58.9% for 2013. Cash flow from operations came in at $147 million, up from $135 million a year ago.

During the quarter, the company added more than 1 million new registry names, processed nearly 9 million domain name registrations, and held a roughly 73% renewal rate.

Being a giant in the space with major brand power, minting cash with substantial recurring revenues, and a solid management team, it's not hard to understand why the tech-averse Berkshire saw opportunity in the company. The conglomerate owns approximately 11 million shares of VeriSign, increasing its holdings over the summer months.

The question, again, is a matter of upside potential. VeriSign trades at just under 20 times its 2014 earnings estimate of $2.55 per share. For a tech company, this is by no means a rich valuation. But VeriSign isn't a typical tech company, and the price assumes much of the expected growth.

Limited upside
It should be noted that VeriSign, while in the Internet space and certainly holding a technology component, is not a tech-heavy company, and does not hold the "tech risk" that many software and hardware developers face. VeriSign's business is very much a service-oriented one, and will not be squeezed out unexpectedly by a product that rewrites the rules of the game.

Still, the company holds favorable growth prospects and just posted double-digit increases across the board.

VeriSign has a comfortable balance sheet, with a recent influx of cash ($2 billion in the coffers) from a senior notes offering. Its market position is very strong and the company's growth should continue at a relatively quick rate. One great thing about low-risk tech plays is that they are typically low capital expenditure businesses with a high ROIC. VeriSign is no exception to this.

At its current price, the company is reasonably valued -- neither cheap nor pricey. The market has been looking closely at the stock since Buffett's purchase, and leaves little room for bargains since the dip last year. But it does not have a too-hot-to-touch price that many tech companies hold. For an investor interested in high growth at a fair price (likely upside but not a home run), with the safety net of the "Buffett factor," VeriSign remains an attractive play.

More from The Motley Fool 
Solid companies selling at depressed prices have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.



Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2612775, ~/Articles/ArticleHandler.aspx, 11/28/2014 1:27:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement