F5 Networks (FFIV) continues setting new 52 week highs, $134 on Thursday afternoon despite the warning signs about the company's valuation. First the good, the company's growth prospects are strong as analysts expect FFIV to post revenue growth of 21% in FY12 and 18% in FY13. EPS is expected to grow in the 18% range both years.
The recent news has also been positive. As for its last quarterly results, the company noted that "strong sales in APAC, Japan, and particularly North America offset the seasonal slowdown that typically characterizes the first quarter of a new fiscal year." The company further added that it is "pleased that sales in the EMEA region exceeded our expectation."
However, the valuation metrics tell a completely different story and suggest that the stock is at very high levels here. The trailing valuation metrics, analysts, and the relative forward valuation all suggest that the stock is overvalued. I would stay away from the stock here and look elsewhere to exposure to the tech sector. Below is an in depth look at the valuation metrics and stock chart.
Valuation: F5 Networks' trailing 5 year valuation metrics suggest that the stock is overvalued as all of the metrics are above their respective 5 year averages. F5 Networks' current P/B ratio is 8.9 and it has averaged 4.9 over the past 5 years with a high of 10 and low of 2.1. F5 Networks' current P/S ratio is 8.7 and it has averaged 5.8 over the past 5 years with a high of 11.2 and low of 2.5. F5 Networks' current P/E ratio is 42.6 and it has averaged 36.9 over the past 5 years with a high of 60.7 and low of 21.4.
Price Target: The consensus price target for the analysts who follow F5 Networks is $131. That is downside of -1% from today's stock price of $132.31 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: F5 Networks is currently trading at about $132 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. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Cisco (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 10.1.
Citrix Systems (CTXS) is currently trading at about $79 a share with analysts expecting EPS of $3.14 next year, an earnings increase of 15% y/y, for a forward P/E ratio of 25.2. Juniper Networks (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 F5 Networks's competitors is 17.5 which suggests that F5 Networks is overvalued relative to its publically traded competitors.
Earnings Estimates: F5 Networks has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 2 cents and 8 cents from consensus estimates or about 2% to 8.2% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a small margin which suggests that the stock may experience limited upside from earnings surprises.
Price Action: F5 Networks is up 19.2% over the past year, outperforming the S&P 500, which is up 13.9%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $121.54 and above its 200 day moving average, which sits at $102.69.