The Case for Boring Products
This might come as a shock, but Gigamon Inc (NYSE: GIMO) isn’t a household name.
It’s not even an underground stock with a cult following. To the average investor, GIMO is simply a run-of-the-mill cybersecurity company without any of the mystery associated with defense stocks.
Readers aren’t exactly desperate to learn about a company that sells network traffic monitoring systems—but then again, who is? I just bored myself writing that sentence.
That being said, boring products are sometimes the best investments.
Think of “Excel” spreadsheets and Microsoft Corporation (NASDAQ:MSFT). Or graphics cards and NVIDIA Corporation (NASDAQ:NVDA). Or data centers and Amazon.com, Inc. (NASDAQ:AMZN).
None of them have the emotional appeal of the “iPhone.”
They’re nowhere near as glamorous, sleek, or sexy, but that doesn’t mean you should ignore them. Especially when they are riding a technological mega-trend like cybersecurity.
Yes, Gigamon’s main schtick is to put security cameras in the Internet’s back alleys. That should make it the dullest company in existence. But for some reason or another, GIMO stock has three amazing tailwinds at its back:
- A strong positive earnings trend
- A bullish technical chart
- A famous investor
With that bounty of blessings, why is GIMO stock still trading below its January highs?
GIMO Stock: A “Tail” of 3 “Winds”
The bearish take on GIMO stock consists of a single, lonely argument:
“Gigamon stock is overvalued relative to earnings.”
Original, right? Tech stocks are frequently criticized for high P/E ratios, but for some reason, the market continues to bestow them with freakish valuations. Why? It must be because tech stocks are growing fast enough to validate those expectations.
Gigamon certainly is—its combination of robust top and bottom lines was enough to land it on the Forbes list of the 25 fastest growing tech companies. Here’s a perfect snapshot of its financials.
|GIGAMON FINANCIAL STRENGTH|
As you can see, revenues are growing and Gigamon is making profits. Better still, the company is making more profits each year. Critics might point out that profits have tumbled this year, which is a fair criticism, but I’d urge you to look at the bigger picture.
Consider that Elliott Management Corporation, the investment fund of Paul Singer, took a massive stake in Gigamon. Singer is best known for suing the Argentinian government (and winning), so it’s not like him to bet on a loser.
Elliott said in its SEC filing that GIMO stock is “significantly undervalued and represent[s] an attractive investment opportunity,” although it suggested that a guiding hand might be needed to squeeze those profits out. (Source: “Gigamon Inc,” Securities and Exchange Commission, April 28, 2017.)
It also suggested that Gigamon looks like a ripe acquisition target. No wonder its technical indicators are positively screaming that GIMO stock is ready for a breakout.
Its 50-day moving average spiked at the end of August, breaching the 200-day moving average in what technical analysts call a “golden cross.”
Chart courtesy of StockCharts.com
The golden cross is a good omen (if you’ll forgive me for using a fuzzy word like that) because it shows that investors are starting to rethink the potential of Gigamon stock.
Some of you may be surprised to hear me quote technical indicators because I’m usually so tilted towards fundamental analysis. That hasn’t changed. However, I will admit that technical indicators like the golden cross are useful for timing your investments.
Well, there you have it, folks: Gigamon is moments away from taking flight.
It happens to sit on one of the biggest technological trends of the decade, plus it has all the right chart patterns and investor support. Oh, and it has the backing of Paul Singer, who obviously realizes that boring investments can make you rich as quickly as interesting ones.