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Acme Packet Must Dodge the Falling Anvil

Stocks in this article: APKT CIEN CMCA JNPR CSCO

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 Line

Acme 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.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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