Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

This Fallen Bottle Rocket Has More Dry Powder

By Anders Bylund - Updated Apr 6, 2017 at 10:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sure, VASCO's stock got ahead of itself for a while. That's not the end of the growth story, though.

VASCO Data Security International (Nasdaq: VDSI) has been climbing a steep hill since last October. A first-quarter earnings report that fell closer to "adequate" than "impressive" gives it an excuse to sit down and take a well-deserved rest.

Is this the perfect time to pick up some shares, before VASCO gets back up and starts climbing again? Let's find out.

Earlier this month, VASCO shares had doubled over six months -- including a 50% one-month gain. The action in the autumn made some sense, because the IT security industry was ablaze with acquisition action and even more buyout rumors. Small fry such as VASCO, Blue Coat Systems (Nasdaq: BCSI), and Fortinet (Nasdaq: FTNT) found themselves riding a wave of rumor-fueled price gains, with industry giants IBM (NYSE: IBM) and Oracle (Nasdaq: ORCL) often identified as would-be acquirers.

Paradoxically enough, the buyout binge pretty much ended when Intel (Nasdaq: INTC) picked up sector giant McAfee for reasons still not fully explained. Most of the speculative buzz died down, but VASCO kept rising -- and rising, and rising.

The run-up peaked when VASCO traded at 50 times forward earnings at the end of March. Exuberant investors have retraced their steps a bit, and VASCO shares now sell for 33 times 2012 earnings or 45 times trailing income. While hardly "cheap" in the traditional sense, VASCO's sales are growing at a 52% year-over-year clip and earnings growth is simply ridiculous when comparing to results very close to the breakeven point -- as VASCO's were last year.

Sometimes you get what you pay for -- momentum investing has its charms. There are no guarantees in life, short of death and Tax Day, but VASCO looks like it deserves a premium valuation today and should refire that bottle rocket in short order.

The best way to find out what happens next is to keep a close eye on VASCO news, ready to make a move when your investing thesis starts to make sense -- or breaks down. To help with that, we recently started our free My Watchlist service. In just a couple of clicks, you'll get all the information you need to make reasoned decisions about VASCO, or any other stock you'd like to follow. Get started here:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

VASCO Data Security International, Inc. Stock Quote
VASCO Data Security International, Inc.
OSPN
$17.09 (2.09%) $0.35
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$116.90 (-0.02%) $0.02
Intel Corporation Stock Quote
Intel Corporation
INTC
$49.50 (1.85%) $0.90
Oracle Corporation Stock Quote
Oracle Corporation
ORCL
$89.99 (0.27%) $0.24
Fortinet, Inc. Stock Quote
Fortinet, Inc.
FTNT
$313.11 (2.57%) $7.85

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.