As seen on page B12 in the latest IBD Weekly print edition, every one of the 16 mini charts (eight stocks from the Nasdaq, eight from the NYSE) shows the number of quarters in a row in which EPS increases exceeded 15%. Just three names show at least six quarters in a row: Gigamon(GIMO) and NetEase (NTES) at six, and Paycom Software (PAYC) of Oklahoma at nine.
Why is Gigamon thriving, profit-wise?
It's easy to understand that the demand for computer data security is high. America and its allies face cyberattacks on a daily, if not hourly, basis. A bum network means lost sales, lost productivity, and the potential for data theft.
So Gigamon, which specializes in data security, is in a hot business. But a company could be in a hot business and yet still be a dud.
That's certainly not the case for Gigamon. The Santa Clara, Calif., firm has positioned itself as an expert in the field of "network visibility." That's a new industry term that refers to the ability of a company to detect problems in the network before they hit mission-critical activities.
"When companies are attacked, they often find out well after the incursion has happened, giving the attack time to settle in and metastasize into a much larger breach," Johnnie Konstantas, director of security solutions marketing and business development at Gigamon, said earlier this year. "Pervasive visibility to network traffic and continuous monitoring is foundational to mounting the best defense, and this survey highlights that reality."
Back to earnings growth: Gigamon is doing the right things to boost its bottom line. One, it's improving gross margins (81.5% in the second quarter vs. 77.9% a year ago). Two, Gigamon is investing heavily in future products and innovation. In the second quarter of this year, R&D expenses grew to 23% of total sales. A company that fails to keep innovating often loses its cutting edge and fast profit growth. Three, Gigamon is loaded with strong executives who have worked at some of the best companies in Silicon Valley over the years, from Netscape and Sun to JDS Uniphase, Microsoft (MSFT) and NetSuite (N).
Please note that within the past six quarters, in Q1 and Q2 of 2015, Gigamon posted strong earnings of 13 cents a share and 16 cents vs. net losses of 7 cents and 4 cents in the year-ago quarters. These two reports count within the six-quarter stretch of good EPS growth. From Q3 of 2015 to the second quarter of this year, Gigamon's earnings bulged higher by 450%, 61%, 69% and 88%.
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