- F5 Networks continues to have steady financial growth
- Financials are not affected by recent international news
- Technical analysis is showing a support at around $115
Investors have shown plenty of anxiety lately due to events in China, Greece, and elsewhere. In response, the Dow Jones Industrial Average (INDEX:INDU) has fallen over 2000 points or 11% from its year-to-date high of 18,310 set just over 3 months ago. With this shakeout, investors are looking for safe stocks to invest in. F5 Networks (NASDAQ::FFIV) is one of those stocks.
Steady Growth In Topline As Well As Earnings
F5 Networks provides software and services that provides improved security, management, and performance for networks and storage systems. The company's software provides scaling of cloud, data center, and SDN (software defined networking) for customers.
The company is enjoying stable growth even as other companies are slowing down. In 2014, the company saw a 16% increase in revenue and a 12% increase in earnings on a YoY basis. That's above the previous YoY revenue growth of 8% and 0.07% increase in earnings. They are on track to achieve higher growth rates this year than in 2014.
The company beat analyst expectations in Q3 2015. EPS came in at at $1.67, $0.07 better than analysts had predicted. Net revenues increased 8% YoY for products and 17% YoY for services. Sales for both products and services has been steadily growing from year-to-year. Gross margins also improved slightly. Analysts expect further improvement in sales and margins.
Although priced at a similar multiple to one of its main competitors, Citrix Systems (NASDAQ: CTXS), F5 Networks has much better margins and return on equity as shown below.
F5 Networks Citrix Systems
Forward P/E Ratio 16.36 16.94
Profit Margin 19.22% 8.68%
Operating Margin 29.36% 14.39%
Return on Equity 26.54% 12.70%
(data provided by Yahoo Finance)
Stock Price has Support
After the recent downturn, F5 Ntworks stock is now trading around $120/share (Sep 9 closing price), down from YTD highs of $134/share on July 31. The stock has fallen 11% off highs, the same percentage as the Dow. So far the stock price is holding above the support area of $115 set in July. The stock did dip briefly down to $112.43 on August 24 but quickly shot back up the same day. Since then it has remained above $117.50.
Partnership with Amazon
F5 recently partnered with Amazon Web Services to offer services for their new software. This will increase the company's exposure to customers for its hybrid platform of services. This is a smart move that will provide long-term returns for the company.
Although F5 Networks stock price dropped as much as other stocks, generally speaking, few other companies are growing as well as F5 Networks. The company has so far been immune to any slowdown in other parts of the economy. For that reason, as well as the technical and fundamental reasons discussed above, F5 Networks stock deserves a long-term buy recommendation.
In the case of further selling pressure in the market, F5 Networks stock will be able to weather the storm better than most other companies. It will hold its stock price better and recover faster than other companies who aren't showing the same growth in their financials. In this market, it's hard to find a better stock than F5 Networks.