The amount of data that corporations must store, back up and protect from prying eyes these days is growing like federal deficits in the midst of a recession. Data storage needs are currently expanding by some 60% annually (although decreasing prices and increasing efficiencies mean costs rise at a fraction of that rate). That provides significant opportunity for companies such as Datalink Corp. (Nasdaq:DTLK), a tightly-run small cap that designs, installs and services customized storage systems that keep corporations running.

Datalink, based in Chanhassen, Minn., is one of the few IT companies enjoying a strong run in a weak market. It beat Wall Street estimates in the last two quarters, and guidance for the coming quarter is strong. In the first quarter this year, reported on April 16, revenue was up 17% to $47.7 million, a record increase for a first quarter, which tends to be a weak one. Net income was $769,000, compared with a $153,000 loss a year ago, and at $0.06 per share beat Street estimates by a penny. Its gross margin of 26.5% was the highest since the fourth quarter of 2004, its backlog of $30 million was only slightly off the previous quarter's record $31 million, and the company's second-quarter guidance is for EPS between $0.07 and $0.11 on revenue of $48 million to $52 million — and this is a company that tends to hit the high end of its guidance. Datalink's current growth rate is about twice that of the overall industry rate of about 6%.

But Datalink doesn't seem to be getting much love from investors. At Tuesday’s closing, the stock was at $4.85, well below its 52-week high of $7.17, reached last June as it was suffering through its second consecutive quarter of losses. The stock has barely rebounded from its 52-week low of $3.54 just before earnings were announced. Its market cap is $61 million.

In his April 17 report, analyst Clinton Morrison with Feltl & Co. wrote: "We have a hard time understanding why DTLK should be trading close to the bottom of a two-year range." Morrison rates DTLK a "strong buy" with a target price of $7, based on . . .

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