Valuation comparison: ATON/FDRY/EXTR
Please see Appiness.com for similar stories for other 'New Economy' sectors:
After buyout of ATON Friday by Nortel, let's analyze the 3 closest competitors in the 'switching' sector
FDRY/EXTR/ATON
Market cap (value)
FDRY $8.5 Bil
ATON $5.3 Bil
EXTR $6.9 Bil
Shares Outstanding (affects market cap)
FDRY 115.5 Mil
ATON 41.3 Mil
EXTR 53.1 Mil
Hence, FDRY a $10 move in FDRY has a much larger move (both up and down in affecting its market cap) A $10 move upward in FDRY affects the market cap by $1.15 Billion, whereas a $10 upward swing in EXTR would only add $530 Million in value.
Shares in Float (affects ability to make quick moves up or down)
FDRY 42.7 mil
ATON 30.6 mil
EXTR 29.7 mil
Essentially equal, except for slightly larger sum with Foundry.
Price to Earnings (P/E)
FDRY 153
ATON N/A (unprofitable over 4 Q's)
EXTR 296
Advantage to Foundry
Total size by Revenue last 4 Q's
FDRY 253 mil
ATON 110 mil
EXTR 262 mil
Foundry and Extreme are virtually equal in size on revenue basis, with Alteon roughly 45% the size (but growing the quickest)
Price to Sales (very important)
FDRY 33.6
ATON 48.7
EXTR 26.4
Extreme is cheapest by this measure, followed my Foundry after its recent swoon. However, these 2 were growing slower than Alteon on a sequential revenue basis.
<<NOTE: Many "New Economy" stocks trade at Price to Sales over 60 now even after this rough week -- very expensive>>
Sequential Revenue Growth the past 4 Quarters
FDRY 27, 27, 42, 62
ATON 83, 65, 35, 61
EXTR 37, 22, 17, 24
Alteon is growing off the smallest revenue base and hence it is the easiest to grow revenues sequentially rapidly. At similar sizes 3 quarters ago, Foundry was growing much quicker than Extreme, but has slowed quarter over quarter recently and Extreme has overtaken it in sequential revenue growth ... these 2 are the most easily compared as they are of similar revenue size, as opposed to the much smaller Alteon.
Gross Margin improvement over past year
FDRY from 55.6% to 65.7%
ATON from 57.5% to 65.6%
EXTR from 52.1% to 50.1%
Foundry and Alteon hold the edge here with similar gross margin improvement and absolute figures in most recent quarter (roughly 65%). Impressively, Alteon has been able to achieve this gross margin [efficieny] on a much smaller revenue basis than its competitors. Extreme has lagged in this area and, in fact has fallen over the past year.
% off 52 week High
FDRY -65%
ATON -13%
EXTR -18%
Foundry decimated recently by sequential revenue growth and lack of R&D spending as compared to peers.. also product movement into routers domain dominated by Cisco and Juniper Networks is of some concern.
Research and Development as a percentage of revenue
FDRY 7.2% in most recent quarter
ATON 13.9% in most recent quarter
EXTR 11.1% in most recent quarter
Alteon holds advantage, but once again due to small revenue basis it must spend a larger percentage to keep up with the Jones'. Foundry is laggard here .. in past 3 quarters its figure has been even smaller; in the 5% range.
Overall assessment; Foundry, the sexy CNBC "name" stock in the sector for the past year has come back to earth to valuations similar to its peer group. With Alteon now out of the picture (Nortel), and Cisco's recent purchase of Arrowpoint the 2 big players left are FDRY and EXTR (of course there are smaller bit players such as FFIV as well). Both stocks trade at significant discounts to their "New Economy" peers who have Price to sales ratios in the 60 to 100+ (for fiber optic firms and Juniper). Along with the wireless, and e-commerce CRM sectors, we find this sector attractive on a pure valuation basis as opposed to the dotcom valuations being placed on our favorite sector: fiber optics.
Enjoy,
Mark
Appiness.com - Technology Stock Investing |
