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Technology Stocks : F5 Networks, Inc. (FFIV) -- Ignore unavailable to you. Want to Upgrade?

To: P.M.Freedman who wrote (872)	5/7/2000 3:13:00 PM
From: Czechsinthemail	Read Replies (1) \| Respond to of 1801

F5 is a small company in its fast growing beginning stage. I believe F5 may double its revenues in 2000 again. Earnings are not important for a small company. The key is revenue growth rate, which tells us if a small company keeps growing. F5 needs to beef up its sale channels so as to gain or at least maintain its market shares. While I would agree with you that revenue growth may be a more important measure, I wouldn't say that earnings are not important. F5's earnings and earnings growth add an important element of quality to the company and its growth. While the recent fashion has been to ignore earnings and focus almost entirely on revenue growth, eventually investors will want to see the revenue growth translated into earnings. Despite its relatively small size and rapid growth, F5's positive earnings make it a substantially more seasoned and mature growth company than most of its peers. The bad news is that F5 gets evaluated on earnings as well as revenues, which is a tougher scrutiny than companies without substantial earnings face. The good news is that F5 is a much less risky stock, particularly in terms of its market risk. It is harder to make the case that F5 is radically overvalued relative to other high-growth tech companies. With a negative mood priced into the stock, there is less likelihood for disappointment dropping the stock much and much more potential for positive surprises to change the mood and give the stock a big lift. That dramatically improves the risk/reward relationship for F5 investors -- there is much more upside relative to the downside risk. One way that earnings can make a big difference is the ability to fund further growth and development in an environment where equity and debt financing are not easily available. In this regard, F5 is in a much less vulnerable position than many other high-growth companies without substantial earnings. I think F5 appreciates the need to support their sales growth. Ironically, their attempts to beef up their sales force may have been the major reason they didn't produce a higher EPS figure in the most recent quarter. The continuation of that process may moderate sequential earnings growth over the next couple of quarters, but it will support more substantial revenue growth over time. People panic when the stock price falls which then causes it to fall further. But Sir John Templeton, one of the great investors of all time, likes to point out that people feel most secure when stocks are near their tops because they are comforted and reassured by the positive stock price history, which they expect will continue. But it is a false sense of security, because it is actually the time of greatest risk and least appreciation potential. Conversely, people feel least secure when prices have been falling because they assume they will continue to fall. But substantial price declines actually reduce risk and increase appreciation potential because you are closer to the eventual bottom and don't have as far to fall. I would only add to that the importance of a company's ability to survive and prosper over time. When markets are very strong, people become more lax around quality and value criteria in evaluating investments. Unfortunately for many investors, these are tests that many young tech companies will not pass and their stock prices will undergo a decline from which they won't return. FFIV will be a winner. Though the current mood is heavily colored by the significant decline in F5's price, the smart money move for those who are patient is to get in when the price is low and the opportunity greatest.