This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Should the Alarms Sound at F5 Networks?

NEW YORK ( TheStreet) -- On the stock market, there is no shortage of growth stocks that are trading at high multiples. As a value investor, I often worry whether these stocks are worth the risk and can ever grow into their valuation. But also I wonder if investors will ever get the future returns they expect from paying such a premium today.

This has been my chief concern with F5 (FFIV - Get Report). I've always wanted to like this stock but I could never collect the nerve to pull the trigger. On the heels of its most recent earnings report, I'm glad that I didn't.

Miss-and-Lower Q4 Very Alarming

For the period ending September, F5 reported net income of $67.7 million, or 85 cents per share on revenue of $362.6 million. Aside from a slightly higher tax rate, profits were somewhat unchanged from the year-ago quarter when the company earned $67.6 million and 84 cents per share. On an adjusted basis and excluding certain items such as stock-based compensation, the company earned $1.12 per share.

While this figure represents a 6% increase year over year, it fell short of analysts' estimates of $1.18 per share on revenue of $366.1 million. Essentially, although F5 grew revenue and EPS by 15% and 6% respectively, the company missed on both its top and bottom lines. Considering how tech companies have fared this year, including rivals such as Cisco (CSCO), this was not a huge surprise. But Cisco does not carry F5's high expectations either. If I were an investor, alarms would be sounding.

The company is producing product revenue growth in only single digits. Likewise, though F5 showed a slight year-over-year improvement in gross margins, that figure showed a noticeable decline sequentially. Similarly, investors have to wonder if growth of less than 13% in operating income supports paying the premium they would pay for these shares today.

Overall, the numbers were far from horrible. For the fiscal year, F5 earned $275.2 million, or $3.45 per share on revenue of $1.38 billion. While this performance can stand up against any other within the tech sector, the question is, does the stock make sense. With the recurring theme being weakness in IT spending, it doesn't appear as if things will get much better.

Moving Forward

The company was cautious in its projections for the coming year but remained optimistic about its growth prospects. For the current quarter ending in December, F5 is expecting adjusted net income in the range of $1.14 to $1.16 per share, falling short of estimates of $1.20 per share. Likewise, the company's revenue projection range of $363 to $370 million also fell short of analysts' estimates of $373.7 million.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FFIV $100.58 -0.37%
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%
TSLA $211.53 -4.96%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs