F5 Networks, Inc. (FFIV) develops software-defined multi-cloud application services to optimize the performance, security, and availability of network delivery services. The company’s dedicated Traffic Management Operating System services provide detailed global traffic management and security services. With the world accelerating toward a technology-oriented future, the demand for FFIV’s comprehensive software platforms has been skyrocketing since last year.
FFIV has been leveraging this boom to attract a higher market share through strategic expansions and acquisitions. It recently ventured into the technology-as-a-service space by acquiring Volterra. This has helped the stock to gain 18.8% year-to-date. The recent positive developments have helped FFIV earn a “Strong Buy” rating in our proprietary rating system.
Here’s how our proprietary POWR Ratings system evaluates FFIV:
Trade Grade: A
FFIV is currently trading above its 50-day and 200-day moving averages of $181.05 and $148.22, respectively, indicating a golden-cross uptrend. The stock gained 60.5% over the past three months, indicating a solid short-term bullishness.
FFIV’s revenues have increased 5% year-over-year to $2.35 billion in fiscal 2020 ended September 30, 2020. Its non-GAAP software revenue increased 52% from the year-ago value in the past year. Gross profit has risen 2.6% from the same period last year to $1.94 billion. Cash and cash equivalents balance has increased 41.6% from the prior year to $852.83 million as of September 30, 2020.
On January 7th FFIV announced its acquisition of Volterra for a total of $500 million in cash and deferred consideration. Volterra’s first universal edge-as-a-service platform integrated with FFIV’s software application should allow the company to consolidate its position in this industry. FFIV is also planning to build a dedicated security-driven and unlimited scale app-driven platform for enterprises and service providers, by leveraging Volterra’s proprietary technology.
Buy & Hold Grade: A
In terms of proximity to 52-week high, which is a key factor that our Buy & Hold grade takes into account, FFIV is well-positioned. It is currently trading just 0.1% below its 52-week high of $204.55, which it hit on January 22nd.
FFIV has gained 44.9% over the past three years, which can be attributed to the company’s strong fundamentals. Its revenue has increased at a CAGR of 4% over the past three years, while total assets have grown at a CAGR of 23.6% over the same period.
FFIV’s fast-paced growth over the past couple of years, outperforming most of its peers, has allowed it to become the leading stock in this industry. Moreover, the company’s impressive growth amid the pandemic allowed the stock to outperform the broader markets. FFIV’s 54.5% gains over the past year beat the benchmark S&P 500 index’s 16.9% returns.
Peer Grade: A
FFIV is currently ranked #6 out of 60 stocks in the Software-Business industry. Other popular stocks in this space are ServiceNow, Inc. (NOW), Autodesk, Inc. (ADSK), and Slack Technologies, Inc. (WORK).
While ADSK has gained 53.6% over the past year, NOW and WORK have returned 73% and 92.6% over the same period, respectively.
Industry Rank: C
The Software – Business industry is currently ranked #55 out of 123 industries in the Stocknews.com universe. As the name suggests, companies in this industry design and deliver intricate software tailor-made for B2B markets. With the onset of the pandemic, the need for a universal software to keep track of daily operations has been crucial, driving this industry’s performance over the past year.
However, with people becoming accustomed to the remote working lifestyle and companies changing their business model to keep up with this trend, the demand for such software has become saturated. Also, with the global vaccine deployment, several industries might resume in-person offices, owing to the nature of work. As a result, these companies are expected to resume operations, eliminating the need for new technologies.
While the future of the Software industry looks bleak, the onset of 5G technology demanding more efficient software might help offset the saturated demand in the global markets.
Overall POWR Rating: A (Strong Buy)
FFIV is rated “Strong Buy” due to its short-and-long-term bullishness and impressive financials, as determined by the four components of our overall POWR Rating.
FFIV is all set to launch the first-ever adaptive Applications platform Edge 2.0, thanks to its acquisition of Volterra. Moreover, the company expects a 68%-70% year-over-year growth in its software revenues in the fiscal first quarter ended December 2020. The report for the quarter is scheduled to be released tomorrow. With such guidance and technological advancements, the company is well-positioned to grow further, despite gaining more than 18% year-to-date.
FFIV has an average broker rating of 1.68, indicating favorable analyst sentiment. Out of 19 Wall Street analysts that rated the stock, 8 rated it “Buy.” The consensus EPS estimate of $2.41 for the current quarter ending March 2021 indicates an 8.1% improvement year-over-year. The company has an impressive earnings surprise history as well, as it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $620.96 million for the ongoing quarter indicates a 6% rise from the same period last year.
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FFIV shares were trading at $207.39 per share on Monday afternoon, up $3.07 (+1.50%). Year-to-date, FFIV has gained 17.88%, versus a 2.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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