Last week, Double-Take Software (Nasdaq: DBTK ) issued 7.5 million shares to the public at $11, which was at the top of its $9-$11 range. The stock surged to $13.60 and has since backed off to $12.03. There's certainly good reason for the enthusiasm: The company is positioned nicely for a growth market in data storage.
Over the past 10 years, Double-Take has been developing so-called replication software. That is, it monitors the information technology (IT) systems of an organization and makes copies of all changes in data. If there's a problem, then things are moved over to alternative systems. The software is affordable (with a median price of $4,000) and works on mainstream platforms, such Microsoft (Nasdaq: MSFT ) servers and Oracle (Nasdaq: ORCL ) servers.
There are certainly big growth drivers for Double-Take. No doubt, corporate America is reliant on key technologies, such as email and collaboration software. Failure of these systems could mean a big loss in productivity, as well as customer problems. Actually, in light of disasters such as Hurricane Katrina, data availability software is becoming a must have.
As a result, the market opportunity for storage replication is significant. According to IDC, the market is expected to grow from $2.1 billion in 2005 to $4.2 billion in 2010. What's more, the submarket for solutions on Windows servers is forecasted to grow from $310 million in 2005 to $940 million in 2010.
It all adds up to nice fundamentals for Double-Take. In the first nine months of 2006, revenues were $41.7 million, which was up from $28.8 million in the same period a year ago. So far this year, the company has posted net income of $5 million.
Valuation? Assuming the business generates $60 million in revenues for 2006, the price-to-sales multiple is about 4x.
True, compared to other enterprise software companies, this may seem high. But keep in mind that the company is growing at a rapid pace (revenues in excess of 40%) and the market has long-term growth drivers. Besides, there has been M&A activity in the storage replication sector, such as with CA's (NYSE: CA ) recent purchase of XOsoft (the price was not disclosed). In fact, there's no shortage of possible buyers for Double-Take, such as Symantec (Nasdaq: SYMC ) , EMC (NYSE: EMC ) , and even Microsoft.
Like many tech IPOs, it's usually a good idea for investors to wait for things to subside. But looking over the next couple years, Double-Take's prospects definitely look strong.
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