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Megagrowth ahead for Micromuse?

The sizzling growth in communications has ramped up demand for fault-management services--trouble spotting and root-cause analysis--for networks and other Internet service providers. Enter startup Micromuse (MUSE), which makes software that helps networks operate efficiently.

Micromuse, which went public at 12 in February, 1998, hit 200 in early March, 2000--just before stocks headed south. The stock has since fallen to 156 5/8. Even at that level, Micromuse sports a market cap of $5.1 billion and a stupendous p-e ratio of 680, based on 1999 earnings of 22 cents a share.

But that hasn't daunted some tech bulls, who think Micromuse is a bargain. "You're getting a company that could grow at a 100% yearly pace in the next year or two," says Jay Nakahara of Invesco GT Technology Fund. And the company is No. 1 in its markets. Customers include big telecoms, plus Cisco, with 5% of sales, and Lucent.

Micromuse isn't yet a strong earnings play, since it still has to invest in infrastructure. Says Nakahara: "It's just at the starting gate but already growing rapidly." He sees sales jumping to $118 million in fiscal 2000 and to $200 million in 2001, up from 1999's $58 million. Earnings should leap to 35 cents a share in fiscal 2000 and to 66 cents in 2001, vs. a loss in 1999, figures Nakahara.

Wendell Laidley of Credit Suisse First Boston rates it a strong buy, in part because he sees it benefiting from "every growth avenue of the communications industry--broadband, wireless Internet, voice, and fiber-optical networking."By Gene G. MarcialReturn to top

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