Citrix Has Plenty to Prove

NEW YORK ( TheStreet) -- Desktop virtualization giant Citrix ( CTXS), whose stock is down 26% over the past month, is still struggling to meet investors' high expectations.

There has always been plenty to like with Citrix's business but I believe the stock has been priced for perfection, which introduced plenty of risk. But Citrix hasn't been alone in this.

The Street has always had a love affair with companies having anything to do with the "cloud." VMware ( VMW) and Red Hat ( RHT), which have enjoyed above-average multiples and P/Es of 45 and 53, respectively, are perfect examples. Unfortunately, the growth expectations presumed by these valuations have not manifested into results.

In the case of Citrix, which has established itself as the go-to vendor for IT virtualization services and remote desktop technology, the company is rethinking its approach because enterprises are delaying system upgrades. Now, given VMware's relative performance, I do believe Citrix's struggle is more market-related than, say, a lack of execution. The dismal numbers we've seen from enterprise titans IBM ( IBM) and Oracle ( ORCL) supports this theory.

Nonetheless, it is worth asking: If enterprises are in no rush to reinvest in their system gear, are they proclaiming they no longer consider virtualization services a top priority? Given that overall IT spending is still down across the board, it's premature to say one way or another if this is the case.

But given that this stock -- even on this pullback -- is still relatively expensive, investors still holding here should realize it may be a while before Citrix demonstrates any sign of strength. The good news is Citrix will report third-quarter earnings on Wednesday. To the extent that management can prove to investors it has a strong pulse in this industry, this stock may finally reach bottom and then turn around.

Wednesday, the Street will be looking for Citrix to post 69 cents in earnings per share on revenue of $714 million, which would represent 11% year-over-year revenue growth. That's not a robust number relative to Citrix's historical performance where revenue growth has exceeded 20%. In this weak IP spending environment it's still not a cakewalk.

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