Hey J1, a look at FDRY:
Foundry Networks, Inc. is a Silicon Valley-based developer of high-performance networking products for companies of all sizes. Foundry’s diverse product lines --NetIron[TM], BigIron[TM], FastIron[TM], and ServerIron[tm] -- include Internet routers, LAN switches, WAN switches, as well as Layer 2, Layer 3, and Layers 4-7 Gigabit Ethernet switches. In a market that has been traditionally dominated by Cisco Systems (CSCO: news, msgs), Foundry has emerged as a formidable competitor in the networking sector, and has become the leader in sales of Layers 4-7 Gigabit Ethernet switches, according to the “Q2CY00 Layer 4-7 Server Load Balancing Switch Report” released by the Dell'Oro Group on August 16, 2000.
With gross profit margins of 66% and solid revenue growth, this profitable company is looking to increase its market share through ramping up its research and development in order to develop more sophisticated products. The company has also been aggressively deploying its growing sales force, signing on new customers at a feverish pace. Foundry Networks has over 50 customers, including numerous high profile technology and telecommunications giants such as America Online (AOL: news, msgs), Earthlink (ELNK: news, msgs), Google.com, Hewlett-Packard (HWP: news, msgs), and Telocity. In addition, the company recently annouced that they would be providing the networking infrastructure for Yahoo! (YHOO: news, msgs) GeoCities.
The company’s competitors include Cisco Systems (CSCO: news, msgs), Juniper Networks (JNPR: news, msgs), and Extreme Networks (EXTR: news, msgs). Its current market capitalization is roughly $7.2 billion.
Founded in 1996 by current CEO, Bobby Johnson, Foundry Networks has done extremely well in its short publicly-traded existence, up an incredible 395% from its split-adjusted IPO price of $12.50 on September 28, 1999. The company has shown six consecutive quarters of increasing profitability, and continues to show healthy growth despite the amount of competition in the networking arena. In July, Foundry reported fiscal second quarter earnings of 19 cents per share, beating Wall Street consensus earnings expectations by 3 cents. In addition, the company’s quarterly revenues came in at $88.8 million, up 268% from the year-ago quarter and up 27% from the previous quarter.
FDRY is currently trading at about $62 per share on a healthy average daily trading volume of 2.8 million shares. Despite the stock being up 395% from its IPO debut, the stock has had a rocky year, down 59% year-to-date and down over 70% from its March 9th high of $207 9/16. As a result, FDRY is trading well below its 50-day and 200-day moving averages, and is only 13% off of its closing price low of $55 share which the stock hit in late May of this year. Nevertheless, I feel that FDRY is an excellent value play, especially when compared to its high-flying competitors, Juniper and Extreme.
Foundry Networks continues to aggressively sign on new customers, yet has been aggressively pouring money into research and development, a strategic move to help better position itself for future growth. I feel that Foundry Networks is a sleeping giant in the networking arena, and is significantly undervalued relative to its peers. With the Internet infrastructure sector continuing to receive favorable notice on Wall Street, the prospects for Foundry look to be extremely favorable over the longer term, especially in light of its still reasonable market valuation.
Based on these factors -- market potential, impressive revenue growth, growing customer base, as well as promising long-term technical indicators -- I believe that Foundry has further upside potential. Despite the promising short- and intermediate-term technical indicators, I am keeping an 9-12 month investment time horizon on Foundry. As always, we encourage investors to due their own due diligence. |
