CROX (again)...and VDSI

VDSI
While the market picked back some volatility today (it was pretty flat and boring for the first few days of the week!), we saw a massive sell off in yet another good company which missed estimates - this time, it was VDSI. VDSI is a leading provider of information security solutions (read remote-token authentication). Due to delay in orders from 3 large customers (should be banking cistomers), the company missed Dec quarter estimates by a wide margin. Outlook for year 2008 was also not too rosy; coming in at USD 150-162 mn as against a street expectation of 163 mn. The market punished it with a 37% drop!!! - shares touching as low as 11.30 intra-day.

Stepping back and taking a broader view, the company has shown sustained revenue and profit growth over the past 3 years. 2005, 06, 07 revenues were 54.6, 76.1 and 120.0 mn repsectively and net profit was 7.7, 12.5 and 21.0 mn respectively. Even at a subdued 25-35% growth rate for '08 and '09, it is currently trading at a P/E of 15 to forward earnings. I see a clear upside here - lock in to Sep calls at $10 strike...which are trading at ~3 levels. This gives enough time for the stock to bounce back and absorb a couple of quarters of earnings reports! It should easily scale back to ~16 levels.

CROX
I was wrong on CROX for earnings day. Despite a great report, the market beat up CROX because of concern on high inventory levels...despite the fact that the company clarified its due to delays in European shipments. CROX definitely doesn't deserve the valuation it has in mid-2007, but its absurdly cheap at current levels. It is trading at a P/E of 10 while expected growth in EPS and revenues is easily over 30%! Again, i would lock in to Sep calls...and expect them to show reduced inventory levels in Q1 '08 and more notably Q2 '08. This should easily scale back to ~32 levels.