Isilon Systems (ISLN): Growing along with the world’s store of data

By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report ?
From Cabot Wealth Advisory 6/21/10 Sign up for free Cabot Wealth Advisory e-newsletter

In my opinion, the market today is saying that the downward market phase that began six weeks ago with worries about Greece, and accelerated as the BP oil spill worsened, is over. The bad news has done its job, raising the level of fear in the market while correcting numerous overbought situations.

Hardest hit were some of the indexes.

But the market’s internal strength remains intact, as illustrated by the reading of Cabot’s Two-Second Indicator. And the action of numerous leading stocks is extremely encouraging.

One of my favorites is Isilon Systems (ISLN), a Seattle company that’s growing fast by providing Network Attached Storage (NAS) to a wide variety of industries that need to store increasing amounts of data while enabling easy and fast access.

Isilon powers the research activities of the world’s foremost cancer research facility.

Isilon provides delivery services for many of the world’s leading entertainment and media companies.

Isilon supports huge galleries of images and other user-generated content for numerous consumer web sites.

And Isilon gives major manufacturers the ability to consolidate vast amounts of complex CAD into shared pools of knowledge, giving engineers immediate shared access to critical data.

In short, as the world’s store of data grows, the needs for services like Isilon’s grow along with it.

And the results are now becoming apparent in the company’s bottom line. Isilon was founded in 2001 and came public in 2006, and it’s grown revenues every year. In the past twelve months, it’s brought in $136 million in revenue. But the company was a regular money-loser until recently, more intent on growing than on making a profit.

Now that’s changed, as economies of scale are truly kicking in.

In fact, Isilon has just posted two consecutive quarters of positive earnings. Revenues are now growing at an accelerating rate (46% in the first quarter), and the profit margin is expanding (7.5% in the first quarter.)

Finally, the stock’s chart reveals strong support by investors who are learning about this young company’s potential. Since gapping up to 14 after the release of a terrific first quarter report in late April, the stock has spent two months digesting that gain. In the depths of the market correction, it had pulled back to its 50-day moving average at 12.

But buyers stepped in, and last week the stock soared on the heaviest volume in weeks, right back up to 14 and more, where it’s primed to break out to new highs.

Editor’s Note: ISLN was featured in Cabot Top Ten Report back on May 17, when it was trading at 12, so subscribers who followed the advice of editor Mike Cintolo have a nice profit today. If you’re not a subscriber, perhaps you should be. To get started with a trial subscription (backed by our money-back guarantee) click here: Cabot Top Ten Report

Tim LuttsTimothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.