If you’ve been following earnings season at all, you know it’s been a tough one for a lot of companies. The market has adopted a pattern of punishing stocks that make even trivial mistakes far more severely than it rewards those with good news.

Not long ago, I did a little digging and found that companies missing the mark lagged consensus by only 0.4% on average, but their shares plunged 4% in response over the next few days. An equivalent surprise to the upside has unlocked gains of only 1.1% over the same time frame.

From a trading perspective, it’s very risky to try to play earnings right now. Even if a company reports solid numbers, one comment from management can send the stock down.

From a longer-term perspective, however, these sharp reactions can be good buying opportunities in companies that remain fundamentally sound but are disproportionately punished in this jittery environment.

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That’s the case with a company I’ve followed in my GameChangers service for a while now: SolarWinds Inc (NYSE:SWI). SWI reported solid fourth-quarter results last Thursday after the close. The stock opened slightly higher on Friday but pulled back in the late-day market swoon to finish down slightly at $48.15. On Monday, SWI dipped all the way to $45.76 before bouncing back to virtually even for the day. It has moved higher in the recent strength, and I see more upside potential.

SWI: IT Trending Toward Virtualization

SolarWinds has been a strong performer for us in my GameChangers service, up about 25% over the last 12 months. It sits at the intersection between virtualization and security, and offers solid potential over the next several months thanks in part to dedicated customers and a growth rate that is already outpacing its overall industry.

This company actually has nothing to do with solar or wind. SWI is really an enterprise software company that sells its products to organizations of all shapes and sizes all over the world, including many Fortune 500 companies. Its main goal is to help other businesses cut costs and operate more efficiently, and its products cost less than many of its competitors, providing strong value that has resulted in a big and loyal customer base.

The company has built its niche in providing software that helps IT professionals manage all aspects of their firm’s technology — from networks to servers — through its Orion Network Performance Monitor, SWI’s flagship product. The software can also monitor, troubleshoot and repair remotely through a process called virtualization.

Virtualization software allows a server to run various applications, data and analytics, and clients can access whatever they need from their individual machines. While most of us are familiar with pulling data off a network server or a cloud location, virtualization allows the machines to function in different operating systems as well.

The machines in essence become customizable so that they can be used for a variety of different purposes. This is simpler and cheaper than every machine functioning on its own operating system and configured for specific purposes.

IT departments all over the world have adopted this approach rapidly in recent years, and SWI’s competitive pricing makes its products very attractive to midsize companies and smaller organizations.

SWI: Solid Upside Potential

SolarWinds reported fourth-quarter earnings results on Jan. 29, and as I mentioned earlier, I was pleased with the results. Earnings came in at 51 cents a share, besting expectations by 3 cents, while revenue growth of 22% was in line with consensus. First-quarter guidance was also in line with expectations.

The stock fell in after-hours trading following the report before popping the next morning, and as I mentioned earlier, it bounced around in the following days and is now trading about where it was prior to the report.

On the conference call, management stated that they continue to see a large opportunity in the “on premise” market for managing IT infrastructure. Many competitors have left this segment to concentrate on cloud deployment of infrastructure, which has left SWI in a strong competitive position.

However, SolarWinds is hardly ignoring the cloud trends, recently acquiring cloud-monitoring company Librato. This acquisition, along with last year’s buyout of Pingdom, will enhance SWI’s efforts to offer solutions to monitor and manage cloud-based applications and infrastructure. These two acquired companies will be combined and known as the SolarWind Cloud.

Other software companies have struggled in this volatile market environment, but SolarWinds is holding steady thanks in part to its low-cost solutions to network management. The company has followed a “buy and build” mentality, which means it has grown both organically and through acquisitions at double-digit rates, thanks to its own product development and strategic buyouts — a trend that looks set to continue. Management also recently outlined plans to branch out into other markets, so there are still significant opportunities for growth ahead.

I don’t see SWI as a high flier, but a steadily growing company with solid double-digit upside potential from current prices.