AVG: Stale Short Thesis = Great Opportunity!

By Ravee Mehta:

For reasons I will explain below, I think there is a good short term long opportunity in this stock as its very high short interest is likely to come down meaningfully and relatively quickly. Even if I put in very conservative assumptions into a DCF, I cannot generate a valuation that is not AT LEAST 100% upside from here (assumptions for DCF highlighted in the last paragraph below).

AVG Technologies (AVG) is a consumer and enterprise software company that operates using a "freemium" model. In 2012, the company grew Adjusted EPS 37% on 18% sales growth. Despite this growth and consistently beating expectations (the average EPS beat vs Street over the last 5 quarters has been close to 50%), the stock currently trades at less than 10x next 12 months Street Adjusted EPS. Free cash flow per share has historically been higher than EPS primarily because of the company’s growing


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