Source: Gigamon.

Gigamon (NYSE:GIMO), reported third-quarter earnings on Oct. 22, far exceeding what the market was expecting and raising guidance to boot on the conference call. It might be hard for people who aren't network administrators to understand what exactly Gigamon does, but the results clearly show that customers like its products. And as the company pivots more toward security, there could be lots of growth ahead.

One of the greatest tools you never knew you needed
Like many Foolish readers, I like high-growth tech companies, especially smaller ones that might not be on everyone's radar yet. Some of these high-growth tech companies remain undiscovered because they are not names consumers are familiar with due to selling products to corporations or network providers. In other cases, it is not immediately obvious what these off-the-beaten-path tech companies do or where their products fit into the tech world's food chain. Gigamon is one of those companies, and this fact may provide a unique opportunity.

Gigamon claims its products optimize the reliability, performance, and security of networks. Great! So how exactly does it do this? Networks have massive amounts of different kinds of traffic flowing over them at all times. Network administrators need to see this traffic, monitor it, analyze it, and sometimes direct or organize it to keep their networks safe and running smoothly. The problem is that it isn't always so easy to eavesdrop on the traffic and examine it without slowing down the system or causing other issues.

This is where Gigamon comes in. The company's products include appliances (hardware) that are installed into servers and coupled with software that helps network administrators see only the data and traffic they want. Gigamon's products were a result of recognizing the current problem and saying "there has to be a better way." Once network admins see Gigamon's products and what they do, they might find it's one of the greatest tools they never knew they needed.

The market will decide
As investors, we don't need to get a degree in computer network and server management to verify whether Gigamon's products do what they say. We have the IT departments of some of the largest and best companies in the world to verify that for us. Gigamon has over 1,700 customers, at least 75 of the Fortune 100 companies, and 50 of the top 100 global service providers such as Verizon, AT&T and Comcast

More impressive are the company's growth figures. Gigamon put up over 40% annual revenue growth from 2010 through 2013. It unfortunately struggled to close as many sales in 2014, showing only 12% revenue growth, but after bringing in a new CFO and head of sales in 2014 it is back on track, with nearly 40% growth expected for 2015. The recent earnings report showed revenue up 44% year over year for the quarter as compared with last year.

Earnings estimates were also handily trounced at $0.22 per share, higher than the expected $0.17. The higher revenue helped, but so did the higher gross margins, which increased to 80%, up from 77% last year. Gigamon is focusing more on security, as it recently released its Security Delivery Platform, which is looking to be promising. The new product carries higher margins because of more software content (rather than hardware), with the result that management expects gross margins to stay near 80% or above for next quarter.

Gigamon is a somewhat unknown small-cap company, but with high growth and a recent earnings release that shows the company may now be firing on all cylinders, it may be worth a look. Conventional valuation metrics make the stock look very expensive, with a current P/E ratio of 140. Yet the forward P/E ratio has already come down to a reasonable 30, making the stock an attractive candidate to consider for a small speculative position.

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.