WBSN: Trying to Make Sense of Websense
My latest column is up at RealMoney. It is about Websense (WBSN), which provides companies with Internet security tools. In brief, I like the company, but I’d like it more at a different price.
The $48 million in free cash flow Websense generated last year equates to a 5.1% free-cash-flow yield, about double the yield on five-year Treasuries. Analysts are projecting a 13% growth rate over the next five years, but 28.4% for this year. Given the growth in deferred revenue, I think this year’s growth number will be easily met. That means that the 13% five-year rate only requires 9.5% growth in the remaining four years.
With estimates rising, the growth estimates appearing conservative, and a solid free-cash-flow yield, I like the prospects for Websense over the longer term. However, I’ll be approaching an investment cautiously. On the fundamental side, I’d like to see the earnings quality and cash-flow improvements start to show up. Absent that, the chart could look a bit stronger — especially given the whipsaw market we’ve been in lately.
I’d normally look at writing put options here, but the price is too far from any strike price to make the premium sufficiently attractive to me. Whether higher or lower, I’d prefer a different entry point. A pullback to recent lows would boost the free-cash-flow yield above 6%. Alternatively, better price action would give me more confidence that the bottom is really in place.
The full article is available at RealMoney.
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