Organizations of all types and sizes are increasingly demanding greater visibility into their IT networks. Enterprises, service providers and governments worldwide know that better network visibility leads to improved monitoring, management and protection. The total addressable market for visibility solutions is estimated at $2 billion to $3 billion.

Gigamon (GIMO), a leading provider of solutions used to glean intelligence from networking traffic, is added to the Next Wave Portfolio because the company is on a path of improved execution, aided by ramping demand for security-related offerings and a strong new product cycle. Gigamon has about 1,650 customers, including 94 added in the fourth quarter (up from 81 adds in Q3).

Gigamon’s solutions—designed to optimize the visibility, reliability, performance and security of a customer’s physical and virtual infrastructure— gain access to all information in motion across a network, decrypting and de-encapsulating data where necessary. An improved return on investment (ROI) is the driving force behind demand for Gigamon’s offerings: the company claims savings of 26% to 52% (compared to legacy network performance management solutions) among a sampling of customers.

In the past, Gigamon’s main growth drivers were the cloud, virtualization and mobility. However, during the past year, enterprise customers (particularly those focused on the datacenter) have significantly increased their spending on infrastructure security, providing an important new tailwind for Gigamon. About 50% of all Gigamon deals are now tied to security use cases.

In the December quarter, bookings from the government vertical (representing 13% of total bookings) surged 261% year over year, with demand directly tied to security. Last year, more than 80% of the company’s federal business was associated with or directly related to cybsersecurity initiatives.

On the fourth quarter earnings conference call, Gigamon CEO Paul Hooper said: “We are seeing an increasing number of transactions where our visibility fabric is being deployed to enable & complement security instrumentation and monitoring solutions.”

With security budgets on the rise (a recent survey of 800 IT security decision makers conducted by CyberEdge Group showed that 62% of respondents expected to boost their security spending in 2015, vs. 48% at the same time last year), Gigamon is positioned to benefit over the next several quarters.

Also on the Q4 earnings call, Hooper said the company was seeing more momentum in its business at the start of this year than it did in the early part of 2014. Here is some proof: Q4 bookings from the enterprise segment (representing 73% of total bookings) jumped 68% from the year-ago level. Services deferred revenue in Q4 of $51.7 million advanced 27% sequentially, while product backlog of $12 million doubled on a sequential basis.

Product revenue in Q4 of $36.7 million rose 16% year over year and 40% sequentially, with the GigaVUE-HC2 midrange offering (launched in Q2 2014) continuing to see accelerated adoption, thanks in part to its modular, high-density form factor; the competition requires as much as five times the footprint to do the same thing as HC2, which shows just how Gigamon is winning the ROI race.

In Q4, HC2 product bookings doubled from the September quarter. It helps that HC2 has a new bypass module (boasting a 50% attach rate), which works directly with security solutions (such as those covering intrusion prevention and anti-malware) to protect against inline tool failures disrupting network traffic.

HC2’s traffic distribution capabilities improve the scalability of inline security by distributing the traffic across multiple tools, allowing them to share the load and inspect more data. In addition, the HC2 bypass module offers traffic profiling, which sends specific traffic to the tools best suited for that traffic. Gigamon’s security partners include Cisco Systems (CSCO), FireEye (FEYE) and Palo Alto Networks (PANW).

Gigamon has been adding some high-level management talent: Scott Sullivan, who joined in December to lead worldwide channel sales, most recently held the same position at competitor VSS Monitoring (currently owned by Danaher), while the new VP of the EMEA region, Andy Zolo, came aboard in January after running Dell’s security division in that region.

For the seasonally slower Q1, Gigamon’s revenue guidance range of $40 million to $43 million (the consensus was $41.6 million) still indicates 30% growth at the midpoint. Gross margin guidance of 77% to 78% is favorable compared to Q4 margin of 77%. After reporting Q4 earnings of 18 cents a share, 10 cents above the consensus estimate, Gigamon expects Q1 EPS of one to five cents, vs. the consensus of one cent.

At a recent price of $21.36 a share, Gigamon has a market cap of $708 million, 3.6 times the 2015 consensus revenue estimate of $194.5 million (indicating growth of 23.8%) and 3.1 times the 2016 consensus of $225 million. For 2015, EPS is expected to jump to 38 cents from 12 cents last year. The company’s financial profile is solid: cash and investments total $149 million (representing 20% of the recent market cap), with no debt.

Taking into consideration cash/investments on the balance sheet, Gigamon shares trade at the same forward revenue multiple as those of main competitor NetScout Systems (NTCT), even though Gigamon’s forward revenue growth rate is expected to be 73% faster than that of the company’s larger rival.

Given Gigamon’s strong underlying momentum (especially related to security use cases), the company over the next few quarters could see upward revenue/earnings estimate revisions along with valuation expansion.

Gigamon is a ‘Buy’ in the Next Wave Portfolio up to $24.