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Is F5 a Value Play or a Growth Risk?

Both Cisco and HP could do something like this while maintaining their single-digit growth performances. After all, they have the benefit of being in other businesses outside of F5's market.

So as promising as F5 appears today, could investors stomach declining margins for a stock trading at twice the forward price-to-earnings ratio of Cisco and four times that of HP? In other words, when considering F5 at current levels, investors have to decide does it present exceptional value or is it merely a growth risk?

One thing is certain: the company is just not going to suddenly stop growing. In assessing the company's investment worthiness, one has to start looking to where the market is heading -- particularly in areas such as cloud computing and virtualization -- areas where F5 has not only excelled, but has more than doubled its revenue over the past five years.

One of its underappreciated strengths is its high-tech multiprocessors that provide corporate IT services to companies. This helps IT departments use off-site data storage and also helps corporations exercise safety from the standpoint of data processing.

There is also its lead in the core ADC market -- one where (according to Gartner) it has over 60% market share ahead of even Cisco. All of this indicates that expensive or not, this is a risk worth taking.

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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