Network Engines (NEI)

[blueskywaves]

The short answer is that it's a very cheap stock in the right places at the right time.

The long answer starts in the numbers of this small cap work in progress.

FY02 revenue was $14.5M. TTM revenue was $35M 2Q03 revenue was already $19.5M including the first full quarter contribution ($10.2M) of the TidalWire acquisition. Going forward, NENG is on track to exit FY2003 (ending in September) with $25M to $30M in quarterly revenue or $100M to $120M in revenue on an annualized basis.

NENG was nearly profitable ($2.9M loss) and nearly cash flow positive (negative $3.3M) through the first 6 months of FY2003. I think it is on track to be modestly profitable and modestly cash flow positive exiting FY2003 excluding the cash burn entailed by new products.

At today's close of $2.81@33.5M shares, NENG currently has a market cap of $94M. That works out to a PSR of 2.69x based on TTM (trailing twelve months) revenue of $35M but a PSR range of only 0.78x to 0.94x based on a 4Q03 projected revenue range of $25M to $30M -- $100M to $120M on an annualized basis.

That's extremely cheap for a company fully capable of doubling sales for each of the next 2 to 3 years because of the way it has positioned itself to participate in the ongoing consolidation of the software industry around the customer-laid tracks created by the inexorable trend towards networked storage.

More later.

Useful links.

http://www.searchstorage.com
http://www.byteandswitch.com
http://is.pennnet.com/home.cfm
http://www.eweek.com/category2/0,3960,98,00.asp
http://www.computerworld.com/hardwaretopics/storage?from=left
http://www.nwfusion.com/topics/storage.html