Although there is certainly considerable competition among the networking stocks, I'm not sure I'd agree that there isn't enough business to support all of them. The problem you've had recently has been a shift of perception and the feeling that their rates of growth are slowing down. This may be the case from more intense competition or simply the size companies like Ascend and Cisco have grown into that makes extending their super-high rates of growth increasingly harder to pull off.
What I see is that the market is becoming more differentiated between stronger players--like Ascend, that are becoming relatively stronger, and weaker players--like Shiva, that seem to be getting relatively weaker. This differentiation process will tend to favor companies like Ascend with higher PE's. But at certain times, there is enough of the fear and panic present to blur the distinctions. At these times, networking stocks get traded as a group and each company becomes more closely tied to the ball and chain of others companies and their results.
Ascend has consistently been one of the strongest of the networking players and shows no signs of letting up. The more this is recognized, the more likely Ascend is to trade up relative to other networking stocks. The investor skepticism you refer to is certainly present, but I think its impact is seen more in the erratic up and down price volatility, which means short term it is harder to predict where Ascend will be. Longer term, as the cream rises to the top, Ascend's share performance will gravitate toward the company's business performance. Since that has been and continues to be strong, eventually the share price should reflect it. Over time, this impacts investor perceptions of quality. Companies like Ascend are understood to be quality companies whose growth and success are trusted more.
Though short term, the merger with Cascade has raised some questions, longer term it strengthens Ascend's position in the industry. As the sorting out of companies goes on, that strengthened and continuing positive position should reward shareholders. The perception of Ascend as a premium player among the networking stocks has helped its stock to bounce back faster than other companies during market recoveries. As we find a real or apparent bottoming, Ascend is likely to be one of the companies that jumps fastest and most.
Baird |
