Turning Disaster Into a Nice Business

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.

For related reading:

Microsoft and Symantec areInside Valuerecommendations. For more information on companies with great growth opportunities, try out the newsletter free for 30 days.

Fool contributorTom Taullidoes not own shares of any companies mentioned in this article. He is currently ranked 758 out of 17,523 in Motley Fool CAPS.


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