Zacks senior technology analyst Steve Biggs, CFA is taking a wait and see attitude on shares of Corel Corporation (CREL). To find out why, we looked into his latest research update:

Following an approximately three-year stint as a privately held company, Corel has emerged as a much stronger and profitable entity. The company is pursuing an acquisition strategy that leverages new products across its strong sales and distribution network, which includes relationships with a number of OEMs [original equipment manufacturers], such as Dell (DELL).

Although we are expecting strong growth from Corel, growth through acquisitions contains a higher degree of risk than organically generated growth, and we therefore maintain a Hold rating and reduce our price target to $13.00 to account for current market conditions. Corel is currently trading at a very reasonable 8.6x estimated fiscal 2008 EPS [earnings per share]. Although a significant discount to the industry, we believe that CREL is a riskier stock than most of its comparables.

Future growth is likely to come through additional acquisitions, which are likely to be dilutive to earnings as the stock has a low valuation and additional debt is not an option given a high debt balance. Though current market conditions have been challenging, we believe the stock can trade at 8.7x fiscal year 2008 EPS of $1.49.