Allot Communications

Allot Communications Ltd. (ALLT - Snapshot Report) has excellent earnings growth estimates and is coming off of another solid quarter.

Shares are currently a Zacks #1 Rank (Strong Buy) and thanks to a rough market, those growth rates are priced at a nice discount.

Company Description

Allot offers IP optimization and revenue generation solutions for fixed and mobile service providers.

Another Earnings Surprise

On Aug 1 Allot topped the Zacks Consensus Estimate by a penny, with EPS of $0.08. That gave the company 4 consecutive earnings surprises. A year ago the company reported a $0.33 loss, so it has been quite a turnaround.

Revenues jumped to $18.5 million, a 35% increase since last year and an 8% sequential increase.

Rapid Earnings Growth

There is only 1 covering analyst contributing to the "consensus" but they are projecting annual EPS of $0.28 for this year and $0.38 for 2012. That puts growth rates at 211% and 36%, respectively.

Only having one analyst does have some risk, because we are only getting 1 opinion. But, generally that leaves the door open for bigger surprises and larger upward revisions.

Valuations

Shares of ALLT are going for about 38 times forward estimates, which seems a bit pricey. But with the growth expectations the PEG ratio is at 1.0, which shows the potential growth is at a decent value.

The price to sales and price to book are around 3 times though.

Possible Dilution

Allot had announced a secondary offering of 4.5 million shares this summer, sending shares sharply lower. Since the stock has suffered the company called off the offering in August.

So, the dilution hasn't happened yet, but could be on the horizon.

The Chart

Shares have been bouncing around the recent lows for a couple of months, but there is still some upside as long as that secondary offering is off the table.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service

Read the full analyst report on ALLT