We believe that OPNET Technologies, Inc. (OPNT) is well-positioned for the long-term as dynamics of computer networks continue to become more complex. We are encouraged that new license revenue has grown sequentially for the three consecutive quarters, following several disappointments, and its focus on growing the pipeline appears to be bearing fruit.

We view the company as the leader in its space, and although the company's decision to invest in its business may depress margins over the short-term, we believe its market position will be improved over the long-term. OPNET is debt free and has close to half of its market cap in cash and marketable securities. We maintain a Hold recommendation on the shares.

With a P/S [price-to-sales] multiple of 1.8x current year estimates and 1.6x FY 2010 estimates, OPENT has the one of the lowest valuations of its peer group. Although we believe investors will likely be somewhat restrained until the company demonstrates operating leverage with its business model by growing new license revenue and working through dilution from Network Physics, we do believe that the stock should approach the mean of its peer group and is protected on the downside with $3.87 in cash and investments per share.

If we exclude amortization of acquired technology, a non-cash charge, the company should generate approximately EPS of $0.49 in fiscal 2010. On this basis, the stock is currently trading at 17.9x our EPS estimate. Given that the near-term outlook for stocks has deteriorated, we are lowering our six month price target by $2 to $12.00. This represents a P/E multiple of 24.5x our adjusted EPS and 2.5x our current year revenue estimate, putting it close to the peer group.