Assessing Akamai Stock After The Recent Price Rally

  • The flight to quality stocks is happening now.
  • Akamai still enjoying steady growth and is financially strong.
  • Akamai stock is near 52-week highs today, but the stock remains fundamentally solid.
Assessing Akamai Stock After The Recent Stock Price Rally

Some mutual funds, retirement funds, and hedge funds that invest in equities have rules in their charter that require them to own stocks with 80% (or some other percentage) of their assets at all times.  The reasoning behind this is simple: since stocks go up over time, fund managers should own stocks most of the time.  During bull markets, that's not a problem since most stocks are rising.  But when a correction or bear market occurs, there is a flight to quality.  Weak stocks fall hard while strong stocks hold up better.

In recent months, weak stocks -- stocks of companies with weak financials -- have already been falling.  In last month's sharp decline, nearly all stocks fell sharply.  Since then, some have remained where they fell while stocks of strong companies have recovered and are approaching previous highs.  Investors are now seeking to own the strongest stocks they can find in the current uncertainties of China, the weak dollar, and the Feds potential rate hike.

Akamai (NASDAQ:AKAM) is still progressing in spite of these uncertainties.  Revenues increased 25% year-over-year in 2014 and 15% in 2013.  Earnings increased 14% year-over-year in 2014 and 43% in 2013.  Net operating cash flow has increased to $264 million in the most recent quarter.  Also, the company's profit margins are expanding.

The company's dominance in the Content Delivery Network services market and strong financials are reflected in its stock price.  In last month's sell-off, Akamai stock fell from $76 on August 1 to an intra-day low of $63.14 on August 24.  From there, investors jumped in to purchase the stock, bringing prices back to Friday's closing price of $74.58, just $1.50 away from its 2-month high, and only $4 off its 52-week high.  It currently trades at over 8 times its bear market low of $9.25 in November 2008.

AKAM stock chart

Akamai stock price chart by

The negative point to mention is that the company's earnings per share declined by 7.5% in the most recent quarter vs. the same period last year.  The reason for this decline is not exactly clear but implied in this statement made by CEO Tom Leighton in July:

"We are continuing to make major investments in innovation and the expansion of our platform to develop new products and to accommodate the potential for substantially increased OTT traffic in 2016."

Akamai is the leader in a growing sector of the technology industry.  They provide services related to delivering and securing online content and business applications internationally.  They provide secure delivery solutions for many types of media content, including games, video, audio, documents, and streaming video.  They offer a suite of analytics tools for companies to understand how well their marketing efforts are working online, such as seeing which pages users are going to, how much time they spend on that page, whether they interact by leaving a comment or clicking on a link, and where they go on the site after leaving that page.  They also provide security solutions for the secure delivery of media, in addition to their cloud storage products.

Considering that online marketing is only going to grow bigger for decades to come, Akamai is likely to reap the rewards of being the leader in this global market.  In my personal opinion, Akamai can be considered as a long term investment opportunity for those who go by fundamentals. You can also see the latest Akamai stock analysis video on this site for a quick look at key financials.

Cover image licensed from - 123RF

Gregg Killpack Gregg Killpack   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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