Here is Why Value Investors Should Buy Extreme Networks Now

NASDAQ: EXTR | Extreme Networks, Inc. News, Ratings, and Charts

EXTR – As the COVID-19 pandemic amplified the demand for innovative cloud networking solutions, communication equipment and network infrastructure, Extreme Networks (EXTR) emerged as a critical provider in accelerating digital transformation. Although EXTR has surged 266% over the past year, we believe the stock still has plenty of upside, based on its sound financials, innovative products, and robust long-term plans. Read ahead to learn why EXTR’s stock is a good addition to one’s portfolio at its current price level.

With an increasing dependence on technology globally, the technology infrastructure space is becoming more prominent. A case in point is Extreme Networks, Inc. (EXTR). This cloud-driven networking solution and infrastructure major is benefiting immensely from its diversified product portfolio and various end-market applications.

EXTR serves more than 50,000 customers globally, supporting their efforts to accelerate their digital transformations with its ExtremeSwitching portfolio, network access control solution ExtremeNAC, and wired and wireless cloud network management solution ExtremeCloud. The stock has returned a whopping 136.6% over the past six months.

However, we believe that the market has not yet priced the true potential of EXTR and that the stock is currently undervalued.

Let’s take a closer look at why EXTR could be a solid value investment:

Robust Financials

Last month, EXTR presented solid financial metrics for its fiscal second quarter, ended December 31. The company delivered  $242.1 million in total revenue, increasing 3% sequentially, driven largely by wider adoption of its innovative cloud networking solutions and newly released universal hardware platform. Its adjusted gross margins were a record 61%, driven by  its  third consecutive quarter of improvement in product gross margin.

Its ExtremeCloud IQ cloud platform is becoming more pronounced with nearly 1.5 million connected networking devices, rising 8% sequentially, and active customer accounts improving 4% sequentially, and new cloud subscription bookings growth of 140% year-over-year.  Further, EXTR further reported an adjusted EPS of $0.13, compared  to $0.09 in its preceding quarter. .

Innovating Product Pipeline

In its  second-quarter earnings call, EXTR’s management stated that one of the prime factors influencing the company’s  strong revenue growth is its focus on developing innovative, next-generation technologies to lead the next market transition. In words of CEO Edward Meyercord, “We have a wide range of new product introductions set for the next calendar year to expand our universal products platform with cloud-native management for switches on a truly unified cloud platform.”

In addition to implementing new cost-saving designs, EXTR plans to embed licenses for  its cloud-based network management tools  in its new products line, thereby generating renewable subscription-style payments with  each hardware package.

Slated Growth for 2021

EXTR served a record 39 customers that spent more than  $1 million in its  last reported quarter. EXTR’s management expects its enterprise businesses’ momentum to accelerate this year, fueled by the continued strength in government and education spending and  a recovery in other verticals that were negatively impacted by the COVID-19 pandemic. In fact, its shipping costs are retreating from  elevated levels during the onset of the public health crisis because  supply chain issues forced the company to seek  alternative channels for product shipments.

Attractive Valuations

In terms of forward p/e, EXTR is currently trading at 18.09x, which is 32.8% below the industry average  26.94x. In terms of its trailing-12-month p/s, EXTR’s 1.26x is significantly lower than the industry average  4.45x.

In terms of trailing-12-month price/cash flow also, EXTR’ 15.10x is 33.3% below the industry average  22.63x.

POWR Ratings Indicate Promising Prospects 

EXTR has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, EXTR has a Value Grade of A, which is justified by the stock’s lower-than-industry valuation ratios discussed here.

EXTR has a B grade for Growth, consistent with analysts’ expectations of robust financial growth. EXTR has a B grade for Quality also, which represents the company’s strong fundamentals. Of the 54 stocks in the B-rated Technology – Communication/Networking industry, EXTR is ranked #5.

Beyond what I stated above, we have also  given EXTR grades for Momentum, Stability and Sentiment. Get all the EXTR ratings here.

Better than EXTR: Click here to learn about top-rated Technology-Communication/ Networking stocks.

Bottom Line

EXTR is well positioned in the networking infrastructure space and should continue to see rising demand for its solutions. The strong growth of EXTR’s cloud subscription bookings is poised to increase its recurring revenue this year. As a result, management expects subscription and support revenue contribution to the overall top-line to improve this year.

These trends, combined with emerging new opportunities in 5G and edge computing, position EXTR well for accelerated long-term growth. Its Average Broker Rating of 1.71 indicates favorable analyst sentiment. Of the seven  Wall Street analysts that rated the stock, four have given it a Buy rating. Analysts expect the stock to hit  $12.10 in the near term, which indicates a potential upside of nearly 20%. Hence, we believe EXTR is a good bargain right now.

Want More Great Investing Ideas?

11 Top Stocks for March 2021

“MUST OWN” Growth Stocks for 2021

How to Ride the 2021 Stock Market Bubble

5 WINNING Stocks Chart Patterns

 


EXTR shares were trading at $9.65 per share on Wednesday morning, down $0.05 (-0.52%). Year-to-date, EXTR has gained 40.06%, versus a 5.52% rise in the benchmark S&P 500 index during the same period.


About the Author: Sidharath Gupta


Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
EXTRGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

3 Energy Stocks Set to Soar Beyond Expectations

Given the geopolitical tensions, increasing global oil demand, and supply adjustments, the energy sector is poised for robust growth. Therefore, investors might consider investing in energy stocks TechnipFMC (FTI), Weatherford International (WFRD), and ChampionX (CHX), which are poised to exceed expectations. Keep reading…

Has Carnival (CCL) Stock Turned Into a Buy After Earnings Release?

Carnival Corporation (CCL) reported record revenue in its most recent quarter but still faces a negative bottom line. The collapse of Francis Scott Key Bridge brings more uncertainty to its financials. Given these events, what stance should one take with CCL stock? Read more to find out…

3 China Stocks Positioned for Long-Term Growth

Despite facing challenges, the Chinese economy has demonstrated resilience, as evidenced by recent robust industrial output and retail sales data. Given this outlook, it might be an opportune time to own three top-notch China stocks, JD.com, Inc. (JD), China Automotive Systems (CAAS), and Youdao, Inc. (DAO). Read on…

What Data Should Investors Focus on Now?

The S&P 500 (SPY) is up nearly 50% from the bear market lows. That is a sign the easy money has been made. The next likely catalyst for stocks will probably be the first Fed rate cut...but maybe that is really the final push before a long overdue sell off? Tune in to discover what investment veteran Steve Reitmeister has to say about the market outlook along with his trading plan and top picks to stay ahead of the pack. Read on below for more...

Read More Stories

More Extreme Networks, Inc. (EXTR) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All EXTR News