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Should the Alarms Sound at F5 Networks?

Stocks in this article: FFIV CSCO JNPR PANW RVBD

On the news, F5 saw its shares plummet 11% -- reaching a new 52-week low of $81.07. It seems the company missed on earnings while also lowering guidance was too much to bear for some investors -- who have now decided to take a more cautious approach in expectations.

Combining F5's weak outlook with increased competition, I have to think this is the right stance. Aside from market leader Cisco seeing a resurgence, there are also the threats from Juniper (JNPR), Riverbed (RVBD) and new market darling Palo Alto Networks (PANW), which recently produced 90% year over year revenue growth.

Unlike many other tech companies that are dealing with weak IT spending, F5's challenge is twofold. Going in 2013, not only does the company face a challenge to produce growth, but that growth needs to come in sufficient quantities to justify the valuation. While management will never admit that they operate on pressures imposed by the company's stock price, this is also hard to ignore.

Bottom Line

The good news for F5 is it has some catalysts on the horizon, including a new product cycle that should be coming out next year. The bad news is the stock is now down over 20% on this current year and making new lows.

Is it time to buy? As promising as this may sound, I'm still not willing to pull the trigger here -- not with the P/E still twice the multiple of Cisco.

F5 is a solid company with an excellent management team. The company continues to log quarterly performances that speak to its sound business. But this continues to be a story about valuation.

With guidance having come down and revenue growing at a slower rate, the prudent play here would be to wait a couple of more quarters to see how IT spending rebounds. The risk in the stock is still too great.

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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