Why Extreme Networks (EXTR) Is Down Today

NEW YORK (TheStreet) -- Extreme Networks (EXTR) was falling 18.1% to $5.76 Wednesday following second-quarter results that missed earnings and revenue estimates.

For its second quarter of fiscal 2014 the networking company posted earnings of 14 cents a share. Capital IQ Consensus Estimate called for earnings of 15 cents a share in the quarter. Revenue rose 96.2% year-over-year to 148.3 million for Extreme Networks, but still fell short of the consensus estimate of $151.64 million.

For the fiscal third quarter the company expects earnings of between 1 cent and 6 cents a share. That's lower than the consensus estimate of 8 cents a share. Extreme Networks expects revenue between $140 million and $155 million for the third quarter, compared to analyst estimates of $152.6 million.

TheStreet Ratings team rates EXTREME NETWORKS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXTREME NETWORKS INC (EXTR) 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 solid stock price performance, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, EXTR's share price has jumped by 108.71%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • EXTR 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, EXTR has a quick ratio of 2.15, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for EXTREME NETWORKS INC is rather high; currently it is at 59.84%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.04% is in-line with the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, EXTREME NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $1.93 million or 72.70% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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