This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
TheStreet Open House

Aruba Networks Seems Cheap But Is There Value?

Stocks in this article: ARUNCSCOIBMORCLAAPL

NEW YORK ( TheStreet) -- Warren Buffett famously said "Price is what you pay. Value is what you get." Investors who struggle with making this distinction between price and value might find it difficult to avoid a stock like Aruba Networks (ARUN) that has recently fallen by as much as 44% over the past several weeks after reporting a brutal fiscal third-quarter report.

Although the stock has rebounded 20% from its $12.38 low, fears about the overall health of the wireless local-area-network (WLAN) market continue to add pressure on Aruba's near-term prospects, which caused the panic selling. Making matters worse, network giant Cisco (CSCO), which owns more than half of the WLAN market has shown no such weaknesses.

What's more, given Cisco's recent comments regarding WLANs and what seems like CEO John Chambers' renewed commitment to growing that part of the business, current Aruba investors should consider that the worst might not be over. Even more disappointing, was that Aruba blamed Cisco's aggressiveness, which included pricing discounts, for Aruba's disappointing third-quarter results. But is Cisco really to blame?

As much as I've always liked Aruba, one of my major concerns has been the competition. I've never felt that Aruba's management addressed the company's leverage well enough. And it seems that it's precisely this deficiency that has now come home to roost.

Still, Aruba's earnings results were not that all surprising -- as bad as they were. Management had already issued a warning to investors a couple of weeks prior that the results were going to be below estimates. Plus, given the fact that Aruba relies so heavily on government contracts, the issues regarding the government sequestration didn't help matters.

To that end, Cisco, which also relies on government spending as well as large corporate customers, saw an opportunity to close some deals (with or without discounts). Unfortunately, Cisco's leverage was used to squeeze out Aruba, which reported an 8% drop in earnings-per-share, when excluding items.


Relative to sell-side estimates, that was not a complete disaster. The company missed EPS estimates by just one penny. This is while postingg 12% revenue growth that was in-line with expectations. But as is often the case, it's not so much about what is reported, the stock reacted to what Aruba is now expected to report.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,344.70 +149.28 0.87%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,622.4740 +56.3360 1.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs