The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- It is not secret that I have been an unabashed cheerleader of networking giant
(CSCO - Get Report)
-- which by default would make me a so called "hater" of its chief rivals including
and to a lesser extent
(HPQ - Get Report)
. Who has ever heard of a Yankees fan that also roots for the Red Sox? It just doesn't make sense.
But I have recently found myself secretly admiring the recent performance of one of Cisco's chief rivals in
(FFIV - Get Report)
, a company that I continue to consider grossly expensive by many standards -- not the least of which stems from its P/E ratio of 42.
Be that as it may, F5 continues to log quarterly performances that suggest that not only does it have its act together, but more importantly, it consistently demonstrates to investors that it has no problem growing into its valuation -- and its recent earnings announcement further affirms to the market that (just maybe) its growth expectations have not reached the level of "too high" as currently perceived.
The quarter that was
In its most recent quarter,
the company reported revenue of $339.6 million -- representing an increase of over 22% on an annual basis and 5.3% sequentially after having $322.4 million in the prior quarter. It earned $68.6 million in net income or 86 cents per diluted share. This compares to having earned $66.5 million or 83 cents per diluted share in the prior quarter. When one considers that its net income represents an increase of over 23% from the same period of a year ago, it becomes clear that this is one company that is heading in the right direction and not only does it have a sound business, but also it benefits from exceptional management. So what is the problem?
For me, regardless of performance, it is hard to fall in love with a stock that trades at such a high P/E of 42 that competes within the same sector as the market leader in Cisco that trades at 15 -- or less than half the multiple of F5. Clearly the company is executing in a manner that suggests that the market just might be right. However, from the standpoint of value and the fact that the company has already climbed 23% on the year, I can't ignore the reality that I might have already missed the boat.
So to make a case for F5 at current levels, I have started to look and skate to where I think the puck is going. And one such area happens to be cloud computing and virtualization -- one of the high demand areas that have contributed to the company's recent stellar performances -- to the extent it has more than doubled its revenue over the past five years. It's also a contributing factor to its 5% growth above its first quarter results.