Sunday, May 28, 2006

Cogent Pummelled -- Worth Looking At?

Shares of biometric play Cogent (COGT) have been smacked hard -- really hard -- over the last few months. The provider of fingerprint ID technology for governments, law enforcement agencies, and corporations was once the talk of the town. The boom in identity theft, coupled with a heightened concern over national security, sent identity verification stocks straight to the moon.

Now, the Street is painting the town red with Cogent's blood. And with good reason: Cogent's last quarter sucked real bad. Revenue dropped 36% to $22.7 million while EBIT tanked 50% to $7.2 million. Apparently, Cogent's customers aren't as concerned about catching hackers and terrorists as they used to be; to top it off, Cogent is having some serious issues controlling expenses.

Although pariah, a few analysts stuck to their buy ratings. Maybe they're thinking what we're thinking: If COGT's top line/bottom line story continues to worsen, we don't see why a potential acquirer wouldn't be interested in Cogent's 42% net margins and clean balance sheet; the company holds $340M in cash and no debt, quite a war chest for such a small firm (< $1.5B market cap and just 164 employees). Because of its advanced technology (patented image reconstruction and highly accurate fingerprint matching algorithm), Cogent controls an attractive niche a larger player might want to look closely at. We're still getting to know this stock, but let's just hope Cogent's next quarter isn't as depressing as this last one.

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