Sandvine still has big upside, says Cormark analyst Tse

Sandvine’s (TSX:SVC) Q2 results were weaker than he expected, but Cormark analyst Richard Tse is still bullish on the stock, which he describes as one of his favourite mid/smallcap names.

On Thursday, Sandvine reported its Q2, 2014 results. The company earned $4.4-million on revenue of $29.7-million. The topline number was 26% better than last year’s second quarter.

CEO Dave Caputo was upbeat about the filing.

“I am pleased that we were able to grow revenue in the second quarter by 26%, with contributions coming so broadly across our customer base,” he said.

Noting that the $0.03 in earnings the company delivered missed his expectation of $0.04, and that revenue fell below his target of $32.2-million, Tse says the quarter gave him “slight pause”. In particular, he was concerned about a book-to-bill ration that fell below 1x. Still, he says the fact that Sandvine was able to post 26% revenue growth without any large deals suggests that the company’s revenue is becoming less volatile and could point to “a stronger probability for outsized revenue quarters.

Tse says he likes Sandvine because he believes carriers, faced with an increasing barrage of content, will look to technologies like Deep-Packet Inspection and Service Creation to manage their networks. He thinks Sandvine has a competitive portfolio that will continue to drive its market share.

In a research update to clients this morning, Tse maintained his “Buy” rating and $5.00 one-year target on Sandvine.