Verisign

I am not known as a spontaneous person but on Friday I threw caution to the wind and sold Microsoft to buy into Verisign.

Verisign was not even on my wish list but when I saw how much the share price had been clobbered after issuing disappointing guidance for Q3 and that the forward P/E was now under 20 I decided that this was an opportunity I didn't want to miss.

It turns out I was right to get in quickly - on Monday the share price rose over 4%!

I don't normally favour companies that have their hands in too many pies but Verisign are involved in all the right businesses. Their main business (which the company name was chosen for I guess) is to issue digital security certificates to e-commerce web sites. This is a repeat business as the certificates expire after so many years. Verisign have over 90% of the market share. Revenue growth is slow but this business will generate cash until the end of time.

The product that all the analysts are excited about is Jamba! (or Jamster in the US.) This software facilitates the delivery of content to mobile phones. The main growth driver has been ringtones but other types of content can be delivered like TV and music.

Writing this article has confirmed how little I really know about Verisign. What was my justification for jumping in?

1) Products are in growth areas.
2) VRSN is cash rich and cash generative
3) Growth is 20% and forward P/E is under 20 (or was on Friday!)
4) Full year guidance was actually increased last week, implying that the street has over-reacted.
5) In the last 6 months the share price has twice plummeted to $25 and then recovered quickly to $30.
6) Analyst opinions are still very positive.

Only time will tell if I am right but I am not losing any sleep over this one!