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Technology Stocks : Radcom Ltd. (RDCMF) -- Ignore unavailable to you. Want to Upgrade?

To: Pete who wrote (33)	6/6/1998 9:45:00 PM
From: Wizzer	Read Replies (1) \| Respond to of 65

From Red Herring (http://redherring.com) IS RADCOM ANOTHER GEM FROM JERUSALEM? By Peter D. Henig June 5, 1998 Take an Internet protocol (IP) packet, rip it open, look inside, and you've got Radcom's (RDCMF) future in the palm of your hand. This baby-cap Israeli company is yet another high-tech export from the Holy Land, but one whose products still have a six to nine month wait before sales are likely to ramp. Yet, with news just out that Radcom has signed an exclusive worldwide sales and marketing agreement with Boeing to commercialize a new high-speed ATM analyzer product, the nearly unknown Nasdaq newbie could become a big hit down the road. Or at least that's what its underwriter C.E. Unterberg, Towbin is banking on. Rip it open and look inside "High-tech Israeli companies have panache," says Craig Sultan, senior analyst with C. E. Unterberg, Towbin. Panache? That's a new one. But Mr. Sultan isn't grandstanding when he says it. He's a believer. Israeli high-tech companies are hot right now. Goldman Sachs recently picked up coverage of seven of them, and word has it that Unterberg may be starting a venture fund just to invest in them. You've got to take what an analyst says with a grain of salt -- particularly one who's touting a client's stock -- Radcom may just be the type of company that delivers over the long term. Radcom tests and analyzes equipment for high-speed data networks. As Mr. Sultan puts it, "they make protocol analyzers to break apart packets that go across networks." But is this that unique? According to Mr. Sultan, it is. "While other companies, like Adtech, have products which are involved with low-level cell analysis, Radcom's products, their protocol analyzers, test the quality of applications within the cells going over the network." Such products will become more important as more applications, like voice-over-IP, are deployed across networks. "That guaranteed performance, like when we start using networks for our phone calls, is when you need to start ripping open those cells," says Mr. Sultan. What's the downside? For a small high-tech company, Radcom's numbers look pretty strong. Although revenues remained fairly flat for 1997 at $20.7 million, Radcom is already showing earnings-per-share of $0.09, with $0.10 of that coming just in the fourth quarter. Mr. Sultan says demand for Radcom's products may remain sluggish for a few more quarters because protocol analyzers tend to lag network deployments as service providers wait for applications and usage demand to pick up. But when it does, watch out, says the analyst. Although Unterberg forecasts only $25 million in revenues for 1998 and $37.5 million for 1999, it predicts that EPS will jump to $0.27 for 1998, and up to $0.50 for the following year. "The amazing thing about this company is that once the products start moving, its gross profitability is 65 to 70 percent," claims Mr. Sultan who has a buy recommendation on the stock with a near-term price target of $8; but it's a target which he says might be raised if things go well. So when will those products start moving? "When there's business to be won, and the company is present, they win it," is all Mr. Sultan will say. But he notes that Radcom also has $23 million in cash in the bank, is cash-flow positive, and with a market cap at just $58 million, is a great value in this inflated market environment. And what of the downside risks? According to Mr. Sultan there are just two. The first is that the big router companies like Cisco could embed their own software in their products. "But that's bullshit," says the analyst. "It bogs down those routers, so it won't happen." The second is opportunity risk: that investors will buy into the stock and it won't move at all for the rest of the year. This could happen, particularly if the market stays soft. (The stock debuted above $11 per share and has slowly floated to recent lows near $5.) But if Mr. Sultan is correct, investors could also turn this unknown baby-cap into a daily double if it meets his $8 price target and then says shalom to the downside for good. Radcom has partnered with Shomiti Systems. Israel's tech market is so hot, it gets its own Goldman Sachs analyst.