If you see a strong-performing company hounded by naysayers and short-sellers, pay attention. You may be on to an ideal investment. If the company truly is a success, all that negativism eventually translates into buying interest for the stock.
Enter WebEx Communications
This made for quite a setup for last night's blowout earnings report. WebEx grew its quarterly sales by 35% and trounced the consensus analyst estimates for both revenue and earnings. The stock responded enthusiastically, rising more than 8% in early trading.
Performance was strong across the board. Gross margins climbed to 83.4% from 82.2% in the year-ago quarter. Moreover, leverage on an expanding sales base provided a record net margin of 17.5%, up from 9.9%. The company also generated $12.9 million in cash, well ahead of reported net income of $7.9 million. This puts WebEx's free cash flow margin in excess of 25%, up from 21% in the prior year.
Just who is this WebEx, you ask? WebEx is the leader in corporate video-conferencing over the web, with more than 7,000 corporate customers. WebEx "meetings" allow users to share presentations, applications, documents and desktop, with full-motion video and integrated telephony. The company recently got a lift from a deal with Yahoo!
Bears insist that WebEx software will eventually be commoditized, perhaps by the likes of Microsoft
Assuming WebEx maintains its 25%-plus free cash flow margins, a current market cap of $675 million may offer a reasonable entry for risk-tolerant investors.
You could have heard about WebEx in Tom Gardner 's Motley Fool Hidden Gems . Tom's not (yet) made it one of his top picks, but the stock's been the subject of lively debate among the Hidden Gem's community.