Acme Packet Must Dodge the Falling Anvil
Since that low period of $13.26 it has risen as high as 50% to $20.14 to where it sits today at just under $19. What's its real value? It seems investors have had a hard time justifying the lofty forward multiples absent sustainable growth momentum.
The stock has moved in both directions by as much as 50%. Is there anything to be made of the indecisiveness? Should the drastic correction be interpreted as an overreaction or has the stock now approached its fair market value?
That said, despite its recent drop from $36, the stock is far from being considered cheap as it yet trades at a price-to-earnings ratio of almost 70. Also there are increasing concerns about the competition.
As noted, while Acme has a sizable lead in the session delivery market, no market leader maintains its lead forever -- particularly where it involves prominent rivals such as Cisco (CSCO) which has the overall lead in network equipment and routing and switching technology.Not to be discounted are the technologies from other rivals such as F5 (FFIV), Hewlett-Packard (HPQ) and Riverbed (RVBD) which are all capable of stealing some market share. These fears, coupled with weak carrier spending have caused analysts to revise their estimates lower not only for this year, but also for 2013.
Bottom LineAcme certainly has a lot to prove and Oct. 25, when it reports earnings, can't come fast enough. While some investors see its recent drop from $36 as an opportunity, I don't think I am yet ready to proclaim value exists. At least not until the company can show that it can grow outside of its reliance on the carriers and/or the carriers start to show more confidence and open up their wallet to buy gear. On the bright side, carriers can't pull their purse strings forever. Acme is certain to reap the benefits of the cycle once it turns and investors will then be proven right or wrong. In the meantime, Acme is a decent long term hold at the moment. While I'm not as excited about it as when it was at $13, it is certainly more attractive now than $36. At the time of publication, the author held no position in any of the stocks mentioned. Follow @rsaintvilus This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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