5 Underlying Trends Supporting Guidance Software, Inc. (GUID)

Page 1 of 2

Data, data, and more data— mountains of data in ever-increasing amounts must be protected, preserved, and investigated. Guidance Software, Inc. (NASDAQ:GUID) happens to be the world’s leader in digital investigations, a multi-billion dollar market growing at 10% annually. Sony and TJ Maxx wish they had talked with Guidance before the breach, instead of after.

Occasionally, the market’s short termism’ provides an opportunity to start a new position in a great company, or add to an existing one. The recent decline in Guidance’s shares is one of those opportunities.

Guidance Software, Inc. (NASDAQ:GUID)The following 4 underlying trends will support shares of Guidance over the medium-to-long term:

1) Cyber warfare is a threat to the overall economy— an economy that creates ever increasing amounts of sensitive data. According to law, protecting this data is not an option, it’s an obligation. Large corporations can not afford to cut expenses here–penny pinching must be done elsewhere.

Recently, the media has been beating the drum (again) about cyber espionage out of China. This story is not going away anytime soon, and Guidance is a direct beneficiary. On the Q4 call, the company highlighted the “financial services” and “energy” verticals as being quite strong.

Sourcefire, Inc. (NASDAQ:FIRE) is another example of a company that has been profiting from the rising wave of Cyber warfare. While they are not in direct competition with Guidance, they do have two things in common. They both help companies minimize their cyber security risk, and not unlike Guidance  Sourcefire is also due for a pullback. According to Google Finance, Sourcefire currently has a P/E just a hair under 200, so their margin for error is quite miniscule.

2) EnCase Everywhere: Guidance says that “the campaign is working.” It’s still too early to tell, but 129 new customers using Guidance’s EnCase product in Q4 is a new high water mark. The first half of the year is historically weaker, so Q1 2013 will give investors their next taste of whether or not EnCase Everywhere is truly gaining momentum.

Guidance makes big money on the upgrade to E-Discovery or Cybersecurity; it’s worth about $125,000 to $200,000 per customer. Strong Enterprise sales are a good indicator of future revenue growth.

3) Competitive Advantage: As an open-source platform, EnCase has an edge when compared to competitor’s closed systems. Guidance’s 70%-80% market share would also indicate that they have a pretty tight grip on things.

More than 40% of Fortune 500 companies rely on the EnCase Enterprise Platform today. However, Guidance is only beginning to scratch the surface of their overall market opportunity in the USA, a country with 6,000 companies sporting over $500 million in revenues. Internationally, it’s likely that government agencies will be the early adopters.

4) Valuation: Symantec Corporation (NASDAQ:SYMC), the $15 billion security and storage behemoth, purchased Clearwell Systems, an E-Discovery platform in 2011 for $390 million, valuing the company at about 7.5 times sales. Guidance has publicly stated that all of their competitors combined have only penetrated the market by 5%-10% beyond them. Investors should watch closely to see if EnCase can maintain this type of lead against Symantec’s Clearwell.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!