NEW YORK (TheStreet) -- Aruba Networks (ARUN) shares are down 3.5% to $17.11 in early market trading on Monday after the mobile enterprise network access solutions provider was downgraded to "market perform" from "outperform" by analysts at JMP Securities today.
Analysts at the firm believe that internal changes the company has taken to cut costs and optimize sales efficiency is the cause of some tension in the sales organization which has in turn hurt sales efficiency.
"Our checks suggest that recent changes made in the sales organization, including cutting compensation and raising sales targets for many of the top-performing sales people, may have impacted morale and demotivated some sales reps, potentially resulting in some reps falling short of sales targets. We believe a few reps have resigned, and we are concerned that more will follow, particularly with the recent departure of the VP, North America Sales," said the firm.
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TheStreet Ratings team rates ARUBA NETWORKS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ARUBA NETWORKS INC (ARUN) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 5.6%. Since the same quarter one year prior, revenues rose by 29.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- ARUN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, ARUN has a quick ratio of 1.73, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for ARUBA NETWORKS INC is currently very high, coming in at 74.17%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ARUN's net profit margin of 1.31% significantly trails the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, ARUBA NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- ARUN has underperformed the S&P 500 Index, declining 5.10% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: ARUN Ratings Report