Company Description

Guidance Software provides digital investigative solutions to government agencies and corporations. It offers EnCase platform for organizations to search, collect, and analyze electronically stored information to address human resources matters, litigation matters, allegations of fraud, suspicious network endpoint activity, and defend their data assets. Guidance Software, Inc. was founded in 1997 and is headquartered in Pasadena, California.

Guidance Software Tops Estimates for Four Straight Quarters

Guidance Software topped the Zacks Consensus Estimate in each of the last four quarters. The average beat has been a little more than $0.05 above the Zacks Consensus Estimate which works out to be an average beat of 182%. As a result of the positive earnings surprises, the stock has moved higher by an average of 7.5% following the earnings releases.

The largest price movement in the stock came the day after the company reported the December 2011 quarter. Guidance Software beat the topline estimate of $28 million by posting revenues of $30 million. EPS of $0.11 was $0.09 higher than the $0.02 Zacks Consensus Estimate and the stock moved higher by more than 32%.

Follow Brian Bolan on twitter at @BBolan1

Guidance Software Most Recent Reported Earnings

On May 3, 2012 Guidance Software reported revenue of $26 million, in line with the Zacks Consensus Estimate and up from $23.5 million reported in year ago quarter, an increase of of 11%. Earnings per share came in at a loss of $0.03, $0.03 higher than the Zacks Consensus Estimate of a loss of $0.06. The beat of 50% didn't help the stock, as investors were hoping for continued profitability that was witnessed in the previous quarter. The stock traded lower by nearly 6% in the session following the earnings release.

Guidance Software Sees Estimates Moving Higher

Guidance Software has seen earnings estimates move higher following the recent positive earnings surprise. The Zacks Consensus Estimate for 2012 was as low as a loss of $0.01 in January 2012 and has since rocketed higher to $0.15.

Estimates for 2013 have also seen an increase following the most recent quarterly release. The Zacks Consensus Estimate for 2013 stood at $0.15 in January 2012 and has since moved to $0.23.

Valuation

The valuation for Guidance Software is a rich one, with the stock trading at 142x trailing twelve months earnings. That is a lofty valuation, but when we look forward twelve months, the picture changes drastically as the company moves into a future of sustained profitability. The forward PE is currently around 56x and is likely to continue to fall as the company consistently posts profitable quarters. Price to book of 7x is reasonable given the consistent revenue growth and price to sales of 2.5x is also more than reasonable given the sales growth.

The Chart

A quick look at the price and consensus chart shows how the earnings estimates help guide the stock. As estimates increase, the stock has followed suit. 2013 estimates are still somewhat new, but they are trending in the right direction. A word of caution must be given here, there is only one analyst following the stock, so the estimate line is subject to wild swings. As more analyst pick up coverage the consensus line will have more meaning and provide an even better way of valuing the stock. Guidance Software is a Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

Like Brian Bolan on Facebook