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Aruba Networks Inc. Stock Downgraded (ARUN)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model

NEW YORK ( TheStreet) -- Aruba Networks (Nasdaq: ARUN) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Communications Equipment industry. The net income has significantly decreased by 104.4% when compared to the same quarter one year ago, falling from $68.19 million to -$3.03 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, ARUBA NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of ARUBA NETWORKS INC has not done very well: it is down 5.69% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • ARUBA NETWORKS INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ARUBA NETWORKS INC swung to a loss, reporting -$0.09 versus $0.59 in the prior year. This year, the market expects an improvement in earnings ($0.76 versus -$0.09).
  • The gross profit margin for ARUBA NETWORKS INC is currently very high, coming in at 74.90%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -2.20% is in-line with the industry average.

Aruba Networks, Inc. provides next-generation network access solutions for the mobile enterprises worldwide. The company has a P/E ratio of 31.7, above the average computer hardware industry P/E ratio of 29.8 and above the S&P 500 P/E ratio of 17.7. Aruba has a market cap of $1.74 billion and is part of the technology sector and computer hardware industry. Shares are down 9.4% year to date as of the close of trading on Friday.

You can view the full Aruba Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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