Does Riverbed Technologies Sleep With the Fishes?

With shares of Riverbed Technologies (NASDAQ:RVBD) trading at around $16.56, is RVBD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

http://www.cheatsheet.com/wp-content/uploads/2013/02/RVBD3-e1360411276101.png

As you might already know, Q4 EPS came in at $0.03 and Q4 revenue came in at $237 million. Both beat estimates, and revenue was a 17 percent increase year-over-year. The problem was weak guidance. However, lowering Q1 EPS by two pennies, and revenue expectations coming in at the low end of the range for analyst expectations, isn’t reason to throw in the towel. If you really stop and think about it, it’s amazing how Wall Street’s habit of looking at companies on such a short-term and microscopic level is absurd. Riverbed’s revenue still increased significantly year-over-year, and if you’re looking at the big picture, then this is a steady yet unexceptional company that will continue to grow in the future.

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There are some other positives to consider. While FY2012 EPS didn’t impress, FY2012 revenue was up 15 percent compared to 2011. Furthermore, Riverbed generated more than $217 million in free cash flow in 2012. The big concern here isn’t the company’s future prospects, but the economy’s future prospects. During the financial crisis of 2008/2009, this stock was beaten down in a severe way. If we find ourselves in that type of environment in the future, then this isn’t the place you want to be. However, let’s hope the sky doesn’t fall and let’s look at Riverbed on a basis of a normal-functioning economy, or at least an economy that pretends it’s functioning normally…

E = Equity to Debt Ratio Is Normal   

The debt-to-equity ratio for Riverbed is normal. The balance sheet is slightly negative, but cash flow is solid.  

Debt-To-Equity

Cash

Long-Term Debt

RVBD

0.64

$451.11 Million

$572.14 Million

JNPR

0.14

$2.85 Billion

$992.20 Million

FNSR

0.05

$262.43 Million

$40.01 Million

 

T = Technicals on the Stock Chart Are Weak

In an environment where most stocks are seeing significant gains, Riverbed has been performing poorly. This has been the case for two years now. Over the past year, Riverbed has underperformed Juniper Networks (NYSE:JNPR) and Finisar Corporation (NASDAQ:FNSR). That said, none of them have performed well as of late, and none of them offer dividends.

1 Month

Year-To-Date

1 Year

3 Year

RVBD

-15.98%

-16.02%

-40.15%

38.69%

JNPR

7.59%

11.03%

-3.87%

-12.71%

FNSR

4.45%

-0.61%

-26.33%

42.64%

 

At $16.56, Riverbed is currently trading well below all its averages.  

50-Day SMA

19.23

100-Day SMA

20.02

200-Day SMA

18.88

 

E = Earnings Have Been Steady           

Earnings have been steady on an annual basis, but 2012 didn’t impress. On the other hand, revenue has increased consistently on an annual basis.

2008

2009

2010

2011

2012

Revenue ($)in millions

333.35

394.15

551.89

726.48

836.86

Diluted EPS ($)

0.07

0.05

0.22

0.38

0.33

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue, but a decline in earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in millions

202.84

182.41

198.47

218.60

237.38

Diluted EPS ($)

0.12

0.04

0.11

0.15

0.03

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Riverbed expects to benefit from continued growth in the WAN optimization business and performance management suite. However, the company’s growth hasn’t been as fast as originally anticipated. Performance management is the fastest growing product line, which is why Riverbed acquired OPNET.

Conclusion

Riverbed has decent margins, good cash flow, consistent top-line growth, and with the acquisition of OPNET, it now expects to be a clear leader in converging application and network performance management segments. However, weak guidance combined with the fact that Riverbed would likely get slammed if the stock market corrected, make this a risky investment at the present time. Riverbed is a WAIT AND SEE.

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