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List of Articles Stocks and Investing Stocks I Own Stock Advice Weight Loss and Fitness Sports Donate Back to Home	A Financial Analysis of F5 Networks Introduction F5 Networks (FFIV) is a $2.38 billion company in the computer network industry. Market capitalization competitors in this industry include NetApp, Jack Henry & Associates, and Cerner Corporation. The computer network industry is down 15.27% over the past year compared to the S&P 500 which is down 7.88% during the same period. Over the past month, the industry has been up 0.79%, while the S&P 500 has been up 0.53%. Strong technical trends may be indicative of a continued expansion in this industry. Evidence comes from a potential turnaround in general equities. Moreover, as there seems to be evidence of confidence in equities, retail stocks like F5 Networks will see future benefits. Also F5 Network’s growth and valuation illustrate the potential for a strong earnings report next quarter. Business This section describes what F5 Network produces. According to Reuters, F5 Networks, “is a provider of application delivery networking products that ensure the security, optimization and availability of applications for any user, anywhere.” Most of the products are custom built systems that combine software and hardware components to help customers. These products include certain functions that can help customers track traffic or other types of data. Some of the other products include BIG-IP, FirePass, WebAccelerator, and Traffic Shield. BIG-IP is used for application processing, encryption, and traffic management. Another product, FirePass, is used for virtual private network users to connect to certain IP addresses across the internet. There are three versions of FirePass differentiated for small, medium, and large customers. A third product is WebAccelerator. WebAccelerator is used to speed up web transactions. Download time and bandwidth optimization are two important concepts. And finally, the last product mentioned is Traffic Shield. Traffic Shield is a type of security system used to protect created applications. With a strong business model described, F5 Networks has a solid plan to produce potential benefits in the future. Growth F5 Networks has illustrated solid growth prospects over the past year. According to Reuters, F5 Networks reported a $0.53 billion revenue product last year. This number is up over 28.70% than it was the previous year. Compared to the industry’s average of 26.65%, investors see the relative strength compared to other competitors. This number is lower than the company’s five year average of 37.17%. However competitor annual averages of 8.16% (Cerner) and 13.51% (Jack Henry) are lower than F5 Network’s current figures. And given that F5 Network’s five year average is higher than the industry’s five year average of 34.12%, this company has the potential to move even higher. F5 Network’s earnings grew at a weak -10.14% last year—a number much lower than the industry average. Competitors such as Cerner only saw a 14.26% improvement and Jack Henry saw a disappointing increase in earnings of 9.26%. Therefore, earnings are not strong for F5, but are expected to grow given high revenue figures. In addition, F5 Networks has kept its costs under control. According to Reuters, F5 Networks has reported gross, operating, and net profit margins of 77.19%, 15.77%, and 11.87% respectively over the past year. Moreover, these numbers are above the industry averages of 46.33%, 15.44%, and 11.31%, respectively. The numbers are also above the company’s five year average respective numbers of 77.29%, 19.25%, and 15.35%. This comparison illustrates a history of strong cost controls and positively-related consistency. The current averages are also better (business model respected) than competitor Cerner’ respective operating and net income averages of 14.13%, and 8.85%. The same comparison can be made for J Crew and American Eagle. Therefore, Aeropostale’s has proved to be a solid company in this industry. Its services are well-controlled cost wise, especially to direct market-cap competitors. Compiling all this information together and investors comes across ROE. Over the past year, F5 Networks reported an ROE of 9.74%. Therefore, out of all shareholder equity, more than 10% (near five year average of 11.86%) come from earnings instead of debt or stock. This number is much weaker compared to the industry average of 28.74%, and the number is better than some competitor averages 18.06% (Jack Henry) and 12.67% (Cerner). Therefore, F5 Networks has a history of strong earnings per its equity share—which reflects the strong capital gain movement over the past year. And if history is any indication, there should be no reason why F5 Networks cannot continue its success. The same logic applies to F5 Networks 7.91% ROA (above industry average) and 9.42% ROI (above industry average). Valuation With fairly high growth estimates and historical data, there should be evidence of an overvalued company. However, this is not strictly the case. F5 Networks has a forward P/E ratio of 16.13 and a price to sales ratio of 1.23 compared to the industry’s respective 25.05 and 2.86, which shows a relatively undervalued status. In comparison, the rest of the market cap competitors have ratios that higher than F5 Networks. NetApp has a forward price to earnings ratio of 28.68 and price to sales ratio of 1.98. What makes F5 Network’s figures are more enticing is these competing firms aren’t growing so greatly as strongly as F5 Networks. F5 Networks can now be seen as both a growing and valued company. Moreover, F5 Networks has a relatively low PEG (1.61) ratio compared to other competitors’ numbers as well. Efficiency F5 Networks is efficient. Inventory turnover at 16.36 is strong compared to other industry market-cap rivals (Jack Associates). Moreover, asset turnover is also strong at 0.67 compared to competitor figures. Receivables turnover were at 6.67, but cash is not an issue for F5 Networks. In terms of liquidation, F5 Networks current ratio is at 2.96. This number is a bit risky, but the company’s capital expenditures have increased (38.76%) which means further increases in capacity and economies of scale may be present in the future, because of this financing. Moreover, institutions own 92.48% of all F5 Networks shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability. Technical Analysis F5 Networks performed poorly in the past year. The company’s share price has decreased 24.83% year-to-year. This type of growth is expected for a recessionary-type economy, especially considering the fact that the housing market and construction is doing so poorly. There seems to be some support at the 19 dollar share price range dating back to late March 2008. The last time F5 Networks reached this amount the company rebounded and appreciated 48%. There is a possibility a similar or better situation could occur in the future. More specific to the current month, F5 Networks illustrates strong technical signals. Parabolic SAR is below and upward trending the current share price. This event usually signals an upturn in share price. The company is a little undervalued compared to the RSI index at 73.12, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of F5 Networks according to technical analysis, purchasing shares will still produce strong long terms gains. Conclusion F5 Networks is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise. -Dennis Biray May 16th, 2008 ©2008 BirayNetworks. All Rights Reserved

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A Financial Analysis of F5 Networks

Introduction

F5 Networks (FFIV) is a $2.38 billion company in the computer network industry. Market capitalization competitors in this industry include NetApp, Jack Henry & Associates, and Cerner Corporation. The computer network industry is down 15.27% over the past year compared to the S&P 500 which is down 7.88% during the same period. Over the past month, the industry has been up 0.79%, while the S&P 500 has been up 0.53%. Strong technical trends may be indicative of a continued expansion in this industry. Evidence comes from a potential turnaround in general equities. Moreover, as there seems to be evidence of confidence in equities, retail stocks like F5 Networks will see future benefits. Also F5 Network’s growth and valuation illustrate the potential for a strong earnings report next quarter.

Business

This section describes what F5 Network produces. According to Reuters, F5 Networks, “is a provider of application delivery networking products that ensure the security, optimization and availability of applications for any user, anywhere.” Most of the products are custom built systems that combine software and hardware components to help customers. These products include certain functions that can help customers track traffic or other types of data. Some of the other products include BIG-IP, FirePass, WebAccelerator, and Traffic Shield.

BIG-IP is used for application processing, encryption, and traffic management. Another product, FirePass, is used for virtual private network users to connect to certain IP addresses across the internet. There are three versions of FirePass differentiated for small, medium, and large customers. A third product is WebAccelerator. WebAccelerator is used to speed up web transactions. Download time and bandwidth optimization are two important concepts. And finally, the last product mentioned is Traffic Shield. Traffic Shield is a type of security system used to protect created applications. With a strong business model described, F5 Networks has a solid plan to produce potential benefits in the future.

Growth

F5 Networks has illustrated solid growth prospects over the past year. According to Reuters, F5 Networks reported a $0.53 billion revenue product last year. This number is up over 28.70% than it was the previous year. Compared to the industry’s average of 26.65%, investors see the relative strength compared to other competitors. This number is lower than the company’s five year average of 37.17%. However competitor annual averages of 8.16% (Cerner) and 13.51% (Jack Henry) are lower than F5 Network’s current figures. And given that F5 Network’s five year average is higher than the industry’s five year average of 34.12%, this company has the potential to move even higher. F5 Network’s earnings grew at a weak -10.14% last year—a number much lower than the industry average. Competitors such as Cerner only saw a 14.26% improvement and Jack Henry saw a disappointing increase in earnings of 9.26%. Therefore, earnings are not strong for F5, but are expected to grow given high revenue figures.

In addition, F5 Networks has kept its costs under control. According to Reuters, F5 Networks has reported gross, operating, and net profit margins of 77.19%, 15.77%, and 11.87% respectively over the past year. Moreover, these numbers are above the industry averages of 46.33%, 15.44%, and 11.31%, respectively. The numbers are also above the company’s five year average respective numbers of 77.29%, 19.25%, and 15.35%. This comparison illustrates a history of strong cost controls and positively-related consistency. The current averages are also better (business model respected) than competitor Cerner’ respective operating and net income averages of 14.13%, and 8.85%. The same comparison can be made for J Crew and American Eagle. Therefore, Aeropostale’s has proved to be a solid company in this industry. Its services are well-controlled cost wise, especially to direct market-cap competitors.

Compiling all this information together and investors comes across ROE. Over the past year, F5 Networks reported an ROE of 9.74%. Therefore, out of all shareholder equity, more than 10% (near five year average of 11.86%) come from earnings instead of debt or stock. This number is much weaker compared to the industry average of 28.74%, and the number is better than some competitor averages 18.06% (Jack Henry) and 12.67% (Cerner). Therefore, F5 Networks has a history of strong earnings per its equity share—which reflects the strong capital gain movement over the past year. And if history is any indication, there should be no reason why F5 Networks cannot continue its success. The same logic applies to F5 Networks 7.91% ROA (above industry average) and 9.42% ROI (above industry average).

Valuation

With fairly high growth estimates and historical data, there should be evidence of an overvalued company. However, this is not strictly the case. F5 Networks has a forward P/E ratio of 16.13 and a price to sales ratio of 1.23 compared to the industry’s respective 25.05 and 2.86, which shows a relatively undervalued status. In comparison, the rest of the market cap competitors have ratios that higher than F5 Networks. NetApp has a forward price to earnings ratio of 28.68 and price to sales ratio of 1.98. What makes F5 Network’s figures are more enticing is these competing firms aren’t growing so greatly as strongly as F5 Networks. F5 Networks can now be seen as both a growing and valued company. Moreover, F5 Networks has a relatively low PEG (1.61) ratio compared to other competitors’ numbers as well.

Efficiency

F5 Networks is efficient. Inventory turnover at 16.36 is strong compared to other industry market-cap rivals (Jack Associates). Moreover, asset turnover is also strong at 0.67 compared to competitor figures. Receivables turnover were at 6.67, but cash is not an issue for F5 Networks. In terms of liquidation, F5 Networks current ratio is at 2.96. This number is a bit risky, but the company’s capital expenditures have increased (38.76%) which means further increases in capacity and economies of scale may be present in the future, because of this financing. Moreover, institutions own 92.48% of all F5 Networks shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability.

Technical Analysis

F5 Networks performed poorly in the past year. The company’s share price has decreased 24.83% year-to-year. This type of growth is expected for a recessionary-type economy, especially considering the fact that the housing market and construction is doing so poorly. There seems to be some support at the 19 dollar share price range dating back to late March 2008. The last time F5 Networks reached this amount the company rebounded and appreciated 48%. There is a possibility a similar or better situation could occur in the future.

More specific to the current month, F5 Networks illustrates strong technical signals. Parabolic SAR is below and upward trending the current share price. This event usually signals an upturn in share price. The company is a little undervalued compared to the RSI index at 73.12, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of F5 Networks according to technical analysis, purchasing shares will still produce strong long terms gains.

Conclusion

F5 Networks is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise.

-Dennis Biray
May 16th, 2008