NEW YORK (TheStreet) -- Network equipment maker Brocade (BRCD) will be reporting first-quarter earnings on Thursday and I will be paying close attention to see if it presents sufficient justification to remain on my watch list. For as much as I have been an unabashed cheerleader of Cisco (CSCO - Get Report) and the rest of the networking sector, Brocade has always been a name I have kept at arm's length.Mainly, the stock has always been too expensive for me. I have never been able to justify paying for an equity that trades almost three times the price-to-earnings ratio of the market leader, Cisco, while also lagging in both operating and gross margins. That never really sat well with me.
Another advantage is being able to sell networking gear to its existing customer base as a means of providing one-stop-shop services. This strategy too has now proven to have worked, or is, at the very least, currently working. Furthermore, the company continues to be underestimates when it comes to discussing its preparation for the cloud. To that end, Brocade has taken a slightly different approach toward organization and deployment. The company understands that networks must be cloud-optimized at every critical point because companies will define not only the application performance but more importantly, the end-user experience. Though it lacks the history of both Cisco and HP, it does have a strong tradition in both data and storage networking. Bottom Line As corporate IT spending fully recovers, there is a chance that Brocade will begin to see its stock price appreciate a bit more. But it stands to reason that as both Cisco and HP maintain their path toward resurgence, they will add increased pressure on smaller names such as Brocade. So far the company has shown that it is up to the challenge. Hopefully that will become evident when it reports its numbers. From an investment standpoint, until its P/E drops a bit more, I will keep it arm's length.