Avoid Riverbed Technology Until There Is More Clarity On New Growth Outlook

Mar.14.12 | About: Riverbed Technology, (RVBD)

After rallying all the way to $45 a share from below $5 in the depths of the credit crisis, Riverbed Technology (NASDAQ:RVBD) pulled back all the way to $20 a share before settling down at its current price of $27 a share. Growth for the company is projected to continue at a steep rate as analysts expect the company to record 18% revenue growth in 2012 and 19% growth in 2013.

However, growth is slower than the company reported as recently as in 2011 and that is part of the reason the stock has drifted lower. Revenue growth in 2011 was over 30%. The trailing valuation metrics obviously suggest that the stock is undervalued as the company matures. Analysts, who take a lot of the current trends into account, aren't very bullish either. On a relative basis, the stock is overvalued. I suggest that investors stay clear of Riverbed for now until there is more clarity for Riverbed's new slower growth environment. Below is an in depth look at the valuation metrics and stock chart as well as the top holders.

Valuation: Riverbed's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Riverbed's current P/B ratio is 5.9 and it has averaged 6.4 over the past 5 years with a high of 13.6 and low of 2.8. Riverbed's current P/S ratio is 5.8 and it has averaged 7 over the past 5 years with a high of 19.5 and low of 2.4. Riverbed's current P/E ratio is 72 and it has averaged 127 over the past 5 years with a high of 258.2 and low of 54.9.

Price Target: The consensus price target for the analysts who follow Riverbed is $30. That is upside of 11% from today's stock price of $27.37 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Riverbed is currently trading at about $27 a share with analysts expecting EPS of $1.3 next year, an earnings increase of 25% y/y, for a forward P/E ratio of 21.1. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Cisco (NASDAQ:CSCO) is currently trading at about $20 a share with analysts expecting EPS of $1.97 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 10.3.

F5 Networks (NASDAQ:FFIV) is currently trading at about $133 a share with analysts expecting EPS of $5.3 next year, an earnings increase of 18% y/y, for a forward P/E ratio of 25. Juniper Networks (NYSE:JNPR) is currently trading at about $21 a share with analysts expecting EPS of $1.24 next year, an earnings increase of 31% y/y, for a forward P/E ratio of 17.2. The mean forward P/E of Riverbed's competitors is 17.5 which suggests that Riverbed is overvalued relative to its publically traded competitors.

Top Stock Holders: The top two funds that own Riverbed are Fidelity Growth Company, which owns 15.4 million shares or 9.76% of the shares outstanding, and Fidelity Contrafund, which owns 3.1 million shares or 1.95% of the shares outstanding. The top two institutions that own Riverbed are Fidelity Management and Research Company, which owns 23.3 million shares or 14.8% of the shares outstanding, and UBS Global Asset Mgmt Americas, which owns 7.7 million shares or 4.89% of the shares outstanding.

Price Action: Riverbed is down 36% over the past year, underperforming the S&P 500, which is up 10%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $27.21 and above its 200 day moving average, which sits at $27.62.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.