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Blue Coat (BCSI) Sees A Huge Third Quarter

Blue Coat Systems (BCSI), WAN optimization software supplier based in Sunnyvale announced huge profits and revenue for its fiscal third quarter, ended December 31, 2007. The company’s sales jumped an incredible 73%, from $47.1 million during last year’s third quarter, to $81.4 million in this year’s third quarter.

The remarkably strong sales performance helped take the company from a $42,000 net income during last year’s quarter (less than 1 cent per share) to a robust $10.5 million net income, or 26 cents per share, net income during this year’s third quarter.

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The company’s adjusted income was actually $.38 per share, much stronger than the $.33 per share that was expected. Looking at all of the earnings and revenue numbers and comparing this year’s third quarter to last year’s gives the stock trading community much to be excited about.

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In spite of the strong profit and revenue growth, many investors initially dumped the stock from their trading portfolio due to concern about slightly shrinking gross profit margins. The company said the lower margins were created by increased product discounting, and sales growth occurring more in areas that had lower margins. Stock investing lowered the company’s shares by 10% following the announcement, but about half of the losses were wiped away the day after.

Stock trading analysts seem convinced the stock is ready for a surge. Current one year analyst estimates are for a $38.57 price target for the stock. This would be a significant jump from its current position below $27 per share. In light of recent commentary from many in the stock research community to avoid technology investments, Blue Coat seems to be a reasonable idea for a long-term investment strategy.

The stock is still a long way from its 52-week high of $53.37, and with the negative technology forecast and economic uncertainty, it might not see that level anytime in the near future. Some investors already long on the stock, may be looking to covered calls to take advantage of a neutral strategy for the near-term. Covered calls offer long investors a chance to still make money on a flat stock or one not moving up quickly.

Some analysts believe the stock is being unfairly scrutinized for its smaller gross margin. Some stock warning signs that scare investors include price wars that could potentially lead to long lasting ceilings on price potential. Many believe this is not the situation that Blue Coat faces. The focus should be on the growth the company has experienced in Europe and Asia and not as much on the margin numbers affected by the generally lower price margins in those markets for products.

Ultimately fund managers, large investors, and personal stock portfolio investors will decide the fate of the stock. Blue Coat can continue to show hikes in sales and profits similar to it third quarter jump, it is a stock that would be hard to question.

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[tags] BCSI, Blue Coat Systems Inc., covered call strategies, investing in stock options, investment strategy, personal stock portfolio, poweroptions, stock investing, stock market help, stock market investment strategies, stock options, stock research, stock trading, stock warning signs [/tags]

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