What's Wrong With Aruba Today?

When elephants dance, the mice around their feet run for their lives. Is there room for specialized network equipment players beyond industry giants Cisco Systems (Nasdaq: CSCO  ) and Juniper Networks (Nasdaq: JNPR  ) ?

By the looks of last night's second-quarter report from Aruba Networks (Nasdaq: ARUN  ) , some mice will do just fine in the shadow of the networking elephants. The specialist in mobile networking for enterprise-class business networking saw non-GAAP earnings inching up to $0.16 per share on 35% stronger sales year-over-year. Both results were slightly ahead of Wall Street estimates.

That result compares favorably to Cisco's recently reported 11% annual revenue growth, which was hailed as the best thing since sliced beets. Juniper isn't growing at all, and is -- perhaps unfairly -- blaming American telecoms for its revenue shortfalls.

Aruba CEO Dominic Orr says that his enterprise customers appreciate Aruba's combination of "security, scalability and mobility software." The company is nothing if not opportunistic, and recently introduced military-grade secure connectivity solutions for the entire iEcosystem of Apple (Nasdaq: AAPL  ) products. That kind of high-grade encryption is a must if paranoid IT directors are to allow workers to bring their own iPhones and iPads to work. And Aruba isn't even asking them to tear out existing networking gear to be replaced with more secure Aruba alternatives -- much of the security work is done in simple add-on software packages.

If everything about Aruba is so rosy, then why did shares drop as much as 10.1% on the report? Well, the stock actually held steady overnight but dropped when analyst firm Jefferies reiterated a "hold" rating on the stock with a target price of $22 -- a good deal below Thursday's $22.65 closing price. "We believe the shares are fully valued," said the firm. How's that for a self-fulfilling prophecy, eh?

I disagree with Jefferies. Aruba's growth story is far from over, and my bullish CAPScall stays firmly in place. Management is pulling all the right levers to keep the engines humming. And let's face it -- if you had to pick one subsector of computer networking that shines brighter than all the rest right now, mobility would be it.