May 31, 2010 - Blue Coat Systems, Inc. (BCSI-NASDAQ) engages in the design, development, and sale of proxy appliances, and related software and services that optimize and secure the delivery of business applications and other information to distributed users over a wide area network (WAN) or the public Internet/Web. Its secure Web gateway products include ProxySG appliance to provide virus scanning, and also provide the IT administrator with visibility into and control of enterprise Web communications; ProxyAV family of Web anti-virus appliances for enterprises to scan for viruses, worms, spyware, and Trojans at the Internet gateway; and WebFilter, a content filtering database to protect enterprise and service provider users and networks from Internet threats, and inappropriate content and traffic.

Its application performance monitoring products include PacketShaper appliance to provide granular visibility into network utilization and application performance; PolicyCenter software to enable IT administrators to manage the configuration, policy management, software distribution, and adaptive response tracking of various PacketShaper appliances; and IntelligenceCenter software to provide application performance monitoring for PacketShaper appliances deployed in various enterprises.

Blue Coat Systems, Inc. has a strategic alliance with Arrow Enterprise Computing Solutions, Inc. The company was formerly known as CacheFlow, Inc. and changed its name to Blue Coat Systems, Inc. in August 2002. Blue Coat Systems, Inc. was founded in 1996 and is headquartered in Sunnyvale, California.

Here's something to remember about this stock: in 1999, it traded at $455.50 a share. By 2002, it was changing hands at $1.00. It then had a 1 for 5 reverse stock split, went up and down like a roller coaster for 5 years, then had a 2 for 1 stock split in 2007. After that it was downhill once again. The stock traded at $53.40 (split adjusted), in 2007, then went straight down for a full year, reaching a low of $7.00 a share. When it hit bottom, it bounced right back. Since the beginning of 2009, it's been straight up, recently changing hands at $36.30. If you get on this ride, buckle up....twice. It's going to be thrilling, if history is any guide.

In fact, in the last week, the stock went from $30.29 to $22.60 due to the company reporting a disappointing outlook. Management suggested first quarter revenues (ending July 31), would be $121 to $126 million compared to the $132 million consensus estimate from analysts. Also, management lowered the guidance for earnings to 35 - 40 cents a share, compared to analysts' consensus estimate of 40 cents.

As you might expect, the reason for the stock's volatility is the earnings. They've been up and down like a gopher at the entrance hole. Here are the last 10 years worth of earnings, starting in 2000: minus $22.23; minus $14.83; minus 91 cents; plus 8 cents; plus 21 cents; plus 10 cents; minus 25 cents; plus 69 cents; plus 41 cents. This year (just ended), analysts see 88 cents, then $1.35 next year. It looks like the pattern might be broken.

Here's the reason Blue Coat is doing well: its products combine two highly desirable attributes: Web security with network acceleration. They help companies reduce bandwidth and infrastructure costs. They can push more data through their networks without adding expensive bandwidth. And the data is secure.

Blue Coat is thriving in a market that shrunk 10% in 2009. The weak economy lowered IT spending. But Blue Coat increased its market share and currently is the market leader, holding 30% of the Wide Area Network optimization appliance market, a market expected to grow by 27% this year and additional growth forecast for several more.

More numbers: Market Cap is $942 million. While the trailing P/E is high at 69, the Forward P/E is 11.4. Price to book is 3.54. Book value is $8.15. Operating margin in the last 12 months was 7.17% while Profit margin was 3.31%. Return on assets was 3.63%. Total cash is $187.25 million or $4.50 a share. Total debt is $77.02 million or 19% of capital. Current ratio is 1.97. Beta is 1.28. The stock is up 103% in the last 12 months. The range for the last 52 weeks was $13.85 to $36.30. There are 41.61 million shares outstanding with a Float of 40.49 million. Insiders own 2.7% of the stock while Institutions have 92.50% of the Float. There is no dividend.

This is a stock that can break your heart and your bank account if you buy at the wrong time. It can also increase your wealth quickly. It's not for the timid. Bold investors willing to ride this stock may be greatly rewarded. The company definitely offers solutions to technology problems
that most other companies face. Now with the recent sell-off, it may be a very opportune time to study this one very closely.

- Company Web site: www.bluecoat.com

- Ted Allrich