F5, Inc. (FFIV) is a global leader in multi-cloud application security and delivery solutions. Its distributed cloud services allow customers to deploy, secure, and operate applications in any architecture, from on-premises to the public cloud. It offers unified security, networking, and application management solutions to a wide range of customers.

For the fourth quarter of 2024, the company delivered impressive financial results, reporting strong software revenue growth of over 19% over the prior year’s period. The company’s software revenue of $735 million for the full year reflects 11% growth from the year-ago period.

In efforts to continuously expand, recently, FFIV entered into a strategic collaboration with MinIO to enhance AI workloads, especially at exascale levels. Also, it announced its partnership with OVHcloud® US to deliver advanced multi-cloud application security. Further, FFIV launched innovations like F5 AI Gateway and BIG-IP Next, both of which target and cater to evolving AI-driven requirements.

The company’s rosy business outlook for the fiscal year 2025 is another testament to its robust prospects. FFIV expects total revenue growth of 4% to 5%, and its non-GAAP EPS is expected to grow between 5% and 7%.

Further, for the first quarter of fiscal year 2025, the company projects to deliver revenue in the range of $705 million to $725 million, while its non-GAAP EPS is expected in the range of $3.29 to $3.41.

Besides, with the growing need for business software and applications, demand for FFIV’s products and solutions will also grow. The business software market is estimated at $720 billion in 2025 and is expected to grow to $1.23 trillion by 2030 at a CAGR of 11.2%.

Shares of FFIV gained 46.3% over the past six months to close its last trading session at $263.95. Further, the stock soared by 48.8% over the past year. The uptick is driven by several factors, including the increasing integration of AI into its innovations, expanding portfolio, and lucrative industry opportunities.

Let’s look at factors that could influence FFIV’s performance in the upcoming months.

Positive Recent Developments

On December 17, 2024, FFIV announced a strategic partnership with MinIO, the leader in high-performance, Kubernetes-native object storage, aimed at uniting MinIO’s cutting-edge, scalable storage solutions with FFIV’s high-performance traffic management and security technologies to enhance AI workloads.

Through strategic collaboration, the companies will address the unique challenges of large-scale AI deployments by providing optimized data flow, robust security, and seamless hybrid and multi-cloud networking. The partnership offers robust and comprehensive solutions and opens vast opportunities for FFIV.

On November 12, 2024, FFIV introduced the F5 AI Gateway, which streamlines interactions between applications, APIs, and large language models (LLMs) and accelerates enterprise AI adoption. The solution optimizes performance, observability, and protection capabilities and results in reduced costs.

F5 AI Gateway is integrated with FFIV’s portfolio, offering security, seamless adoption of AI services through significantly improved data output quality, and a superior user experience.

Robust Financials

During the fourth quarter that ended September 30, 2024, FFIV’s total revenues increased 5.6% year-over-year to $746.67 million, of which its product revenue rose 10.1% year-over-year to $358.28 million. Its non-GAAP gross profit grew 5.8% from the year-ago value to $619 million.

Furthermore, the company’s non-GAAP operating profit of $257 million indicates growth of 7.1% from the prior year’s quarter. Also, FFIV’s non-GAAP net income came in at $216.94 million or $3.67 per share, up 3.9% and 4.9% year-over-year, respectively.

In addition, the company’s cash and cash equivalents stood at $1.07 billion as of September 30, 2024, compared to $797.16 million as of September 30, 2023.

Solid Historical Growth

FFIV’s revenue and EBITDA have grown at respective CAGRs of 2.7% and 11.4% over the past three years. The company’s EBIT has increased 14.5% over the same timeframe, while its net income and EPS have improved at CAGRs of 19.6% and 21.4%, respectively.

Moreover, the company’s total assets and levered free cash flow have increased at 3.9% and 8.3% CAGRs over the past three years.

Favorable Analyst Estimates

Analysts expect FFIV’s revenue for the second quarter (ending March 2025) to increase 3.3% year-over-year to $703.63 million. The consensus EPS estimate of $3.22 for the ongoing quarter reflects a 10.7% year-over-year improvement. Also, the company has topped consensus EPS estimates in all of the trailing four quarters.

Analysts anticipate a 4.7% increase in revenue for the fiscal year 2025, with projections reaching $2.95 billion. Similarly, EPS for the current year is expected to experience a steady growth of 6.7% from the prior year, settling at $14.27. In addition, Wall Street expects the company’s revenue and EPS for the fiscal year (ending September 2026) to grow 4% and 7.9% from the previous year to $3.07 billion and $15.40.

High Profitability

FFIV’s trailing-12-month gross profit margin and EBIT margin of 80.20% and 23.69% are 58.9% and 335.2% higher than the respective industry averages of 50.47% and 5.44%, respectively. Its trailing-12-month net income margin of 20.13% is significantly higher than the industry average of 3.89%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 19.12%, 12.91%, and 10.10% are favorable compared to the industry averages of 4.43%, 3.03%, and 2.07%, respectively. Similarly, its trailing-12-month levered FCF margin of 26.55% is 134.3% higher than the industry average of 11.33%.

Discounted Valuation

In terms of forward non-GAAP P/E, FFIV is trading at 18.50x, 27.2% lower than the industry average of 25.42x. Similarly, the stock’s forward EV/EBIT of 14.17x is 36.5% lower than the industry average of 22.30x. Its forward Price/Book of 4.23x is lower than the 4.38x industry average.

Also, the stock’s forward EV/EBITDA and Price/Cash Flow multiples of 12.89 and 18.91 are considerably lower than the industry averages of 15.97 and 21.72, respectively.

POWR Ratings Reflect Promise

FFIV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating 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 distinct categories. FFIV has an A grade for Quality, reflecting its higher profitability metrics compared to industry standards.

Also, the stock has a B grade for Value, consistent with its discounted valuation.

FFIV is ranked #2 in the 41-stock B-rated Software – Business industry.

Beyond what I have stated above, we have also given FFIV grades for Sentiment, Momentum, Growth, and Stability. Get access to all the FFIV Ratings here.

Bottom Line

F5 is a leader in the multi-cloud application security and delivery solutions segment, serving numerous customers. The company’s solutions and innovations resolve new-age complications, offer security, and enhance operational capabilities and efficiency. In the age of AI, the company is persistently integrating its solutions with technology to keep its clients ahead.

On top of that, the recent strategic collaborations with other industry leaders will further boost the company’s market expansion and product reach.

Given FFIV’s innovative growth strategies, solid financials, accelerating profitability, and lower-than-industry valuation, this software stock could be an ideal buy now.

How Does F5, Inc. (FFIV) Stack Up Against Its Peers?

While FFIV has an overall POWR Rating of A, investors could also check out these other stocks within the B-rated Software – Business industry with A (Strong Buy) or B (Buy) ratings: SolarWinds Corporation (SWI), Yext, Inc. (YEXT), and FARO Technologies, Inc. (FARO).

For exploring more A and B-rated software stocks, click here.

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FFIV shares were trading at $266.87 per share on Tuesday afternoon, up $2.92 (+1.11%). Year-to-date, FFIV has gained 6.12%, versus a 2.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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