Double-Take Software (DBTK)

Double-Take Software (DBTK) is a buyout play. DBTK trading at $7 and change. Forward PE 9.84, and EPS $0.63 is respectable. Virtually no debt and $3.357/share cash on its balance sheet means Double-Take can held its own until the broader market turnaround. That reduces the down-side risk for DBTK. DBTK is small enough and profitable enough to be on bigger competitor’s shopping list once the market turns around.

When stock markets begin to trend up, investors are willing to pay high PE multiples, buying a profitable competitor with low PE in that environment is the fastest way to boost a publicly trading company’s stock price without doing any real work.

Double-Take Software is an established company, by that I mean Double-Take has enough customers paying maintenance and selling enough new licenses to be profitable. For software in Double-Take’s space: data protection, backup and recovery, losing long term customers is not easy. Once data backup/recovery system is installed in production systems, that means every day the user grow more dependent on the software vender because more of the user’s data will be “protected” by the vender’s software. For any competitor to steal Double-Take’s customer, the best way is not to build a better product, but to buy the company.

Trading Strategy:

1. Buy DBTK with $7.50 as reference price.

2. Buy on pull backs.

3. Stop lost at $5 or so.

4. Keep the shares for 1 to 2 years timeframe. 

5. Sell on any rumor of buyout and stock price popped.