You never know when or where you may run across the next great small-cap idea.

Last week, I visited my girlfriend, Kathy, in Bloomington, Ind. — home of my alma mater, Indiana University. On Sunday, we strolled around campus for hours — taking in the fall leaves, the smell of all the little restaurants on Kirkwood and the sights that only a college campus can provide.

After walking ’til our feet hurt, Kat and I decided to stroll into Opie Taylor’s on Walnut Ave. — in the heart of downtown Bloomington. Adorned with pictures of the IU basketball team winning the 1987 NCAA championship and other classic Hoosier sports moments, Opie T’s was the perfect place for two IU grads to be on a Sunday afternoon. After we finished reminiscing about the good old days, we sat down at a booth near the back of the restaurant and ordered a small side of their famous fried zucchini.

While we were waiting for our tasty treat (read: coronary in the making), I tried to be a good boyfriend. So I asked questions about her family — to find out more about the “real” Kat. (Hey, it was better than asking what her favorite color was, right?) One thing led to another and I discovered her father worked for a publicly traded company called LeCroy Corp. (LCRY:NASDAQ) — in Chestnut Ridge, NY. I knew nothing about LeCroy. So as soon as I got back to Kat’s house, I looked it up.

Turns out, LeCroy is quite an interesting little company.

Lecroy: Oscilloscoped

With a market cap of only $190 million, it is a leading provider of oscilloscopes and protocol analyzers — complex electronic tools that help the likes of IBM, Raytheon, Samsung, Seagate, BAE Systems and Maxtor build electronic devices more quickly and efficient than ever before. For instance…

LeCroy works with electronics companies to makes sure MP3 players download songs at warp speed while seamlessly transmitting data to your computer. It works with defense companies to test devices that send out and receive huge volumes of data in a secure fashion. And most importantly, LeCroy works hand in hand with high-tech companies to develop top-of-the-line wireless devices.

Thanks in part to LeCroy’s technology, your laptop will soon be able to talk to your cell phone. Your alarm clock will go off and alert your coffee maker to brew a fresh cup of joe — extra strong. Your refrigerator will tell your microwave when to start cooking. And your electric razor will prompt your TV to turn on (to ESPN, of course).

In the future, nearly every electronic device you use will be connected to others in some fashion. And I’m not the only one who knows so.

Charles Golvin, a principal analyst at Forrester Research, told CNN, “The future of devices that don’t have some kind of connectivity built into them is pretty bleak. It’s going to be the case that almost anything you can think of is going to connect to other things, most often wirelessly.”

Now, I can hear some of you say…

“Come on, Boric. Wireless is old news. This is nothing we haven’t heard before.”

You’re right. But let me remind you, 10 years ago, “wireless electronics” was nothing more than a futuristic concept. Cell phones were mammoth. PDAs didn’t exist. The term MP3 wasn’t created. And the thought of connecting to the Net without a cable must have seemed like a pipe dream.

Lecroy: A Ton of Potential

Well, we’ve come a long way, baby! Today, 71% of all U.S. households have at least one cell phone. Twenty-five million have a laptop computer. 5.3 million households have wireless Internet access. And the amount of text message traffic has increased from 2 billion to 4.7 billion messages per month since 2003.

As consumers, we are demanding more and more wireless functions. And while you may have heard quite a lot about wireless technology in the last few years, it is still a very new concept — one with a ton of growth potential.

That bodes well for LeCroy Corp.

While LeCroy doesn’t make the cell phones, the PDAs, the computers or the MP3 players that operate wirelessly, it does work with the companies that do. It helps them test and perfect their chips, interfaces and circuit boards so that the end products will…well…work.

Obviously, LeCroy is doing something right.

In 2005, it reported record revenues of $165 million. And over the last three years, sales have trended up nicely — growing from $108 million to $125 million to $165 million. And unlike many tech companies we are used to reading about, LeCroy is actually profitable. It made $2.1 million in net income — good enough for an EPS of 17 cents. And there is a lot more room to grow.

According to Prime Data Inc., an independent market research firm tracking the test measurement industry, the market for equipment like LeCroy’s is a $6 billion industry. Hmmm…

It isn’t at all impossible to think that little LeCroy could double its net income as wireless technology takes off even more — as it becomes standard in more than just cell phones, PDAs and laptops. And when that happens, I expect LCRY stock to rise.

Right now, LeCroy is trading for $15.26 a share. Its 52-week high is $26.28. And its 52-week low is $12.45. So it’s trading far nearer its low than its high. And over the last three years, LCRY stock has steadily risen from under $8.50 a pop. Take a look at the chart below…

If you are a scared investor who can’t stomach the ups and downs of the tech market, stay away from LeCroy. But if you are a long-term investor who believes there is growth in the wireless market, this is
one small-cap stock you might want to look into a lot more closely.

That’s all for now.

Best regards,
James Boric

Lecroy: The Best Little Company You Never Heard Of was originally featured in the Penny Sleuth.