Palo Alto Networks Inc (PANW) & Fusion-IO, Inc. (FIO): These 2 Companies Could Solve A Major Problem In High-Tech

Fusion-io

I have written about Fusion-IO, Inc. (NYSE:FIO) several times in the past (and you can always read about any stocks we cover by typing the ticker symbol into our search box), and I’ve repeatedly taken note of the company’s radical and game-changing approach to data storage management.

Trouble is, management was never able to clearly articulate the company’s approach. Analysts at Lazard noted: “To some, FIO is a component vendor, a business based on PCIe-based flash cards that willinevitably commoditize. Others correctly point out that FIO boasts a unique software portfolio, but we believe many are oblivious as to what the strategy and value proposition of FIO’s software portfolio really is. While we all have our view, we believe there may have been an identity crisis within the company itself.” Those analysts see shares rising to $23.

That confusion has led to a shake-up in management and a 55% drop in the stock from the 52-week high. Yet even with that turmoil, this is still a fast-growing business. Sales shot up from $36 million in fiscal 2010 to $359 million in fiscal 2012, and analysts see that figure exceeding $550 million in Fusion-IO, Inc. (NYSE:FIO)’s current fiscal year, which began this week.

As is the case with Palo Alto Networks Inc (NYSE:PANW), Fusion-IO, Inc. (NYSE:FIO) is investing heavily to handle the next leg of growth, which is dampening profits. That’s a real turn-off for myopic investors, but crucial if this company is to eventually meet its goal of $1 billion in annual sales. At a minimum, it’s a necessary effort to ensure that this business realizes its full potential if new management decides to put the company up for sale.

Risks to Consider: Never buy a stock solely on the basis of buyout hopes. Instead, look at possible M&A activity as a potential catalyst.

Action to Take –> It’s hardly a bold move to predict that we will see major transactions in the technology sector in the second half of this year. Deal-making is the lifeblood of this sector, and cash-rich balance sheets, along with an anemic top-line organic growth, set the stage for more deals. Whichever tech stock you are researching, analyze them in the context of the broader landscape. Do the companies you’re looking at have the right products or customer bases that would hold appeal to bigger players? Those traits have been markers for success in the past.

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This article was originally written by David Sterman and posted on StreetAuthority.