Riverbed Technology Hits a 52-Week Low: Can It Recover?

Shares of Riverbed Technology (Nasdaq: RVBD  ) hit a 52-week low yesterday. Let's look at how it got here and whether dark clouds are ahead.

How it got here
The wide area network optimization specialist is no stranger to volatility. Shareholders, like myself, can expect a minimum of a 15% move whenever the company reports earnings. I would have loved "only" a loss of 15% as opposed to the 29% plunge that Riverbed saw on its most recent quarter.

Riverbed was a Street darling up until last summer, when the company missed revenue estimates by a hair. The next quarter was a sigh of relief, sending bears packing temporarily. Unfortunately, both quarters since then have disappointed investors as Riverbed's growth prospects have been called into question amid poor execution, particularly in international segments where other IT-centric players were seeing some upside.

The fear is that maybe the WAN optimization market doesn't have as much growth opportunities as investors thought. To mitigate this risk, Riverbed is now trying to transform itself into a multiproduct company, but that transition itself will naturally have some risks and competition along the way.

How it stacks up
Let's see how Riverbed stacks up with its networking peers.

RVBD Chart

RVBD data by YCharts

We'll add in some additional fundamental metrics for a deeper read.

Company

P/E (TTM)

Sales growth (MRQ)

Net margin (TTM)

ROE (TTM)

Riverbed Technology 52.1 11.5% 7.7% 8.4%
Cisco Systems (Nasdaq: CSCO  ) 14.6 10.8% 15.6% 14.8%
F5 Networks (Nasdaq: FFIV  ) 39.1 22.4% 20.9% 22.8%
Juniper Networks (Nasdaq: JNPR  ) 32.7 (6.3%) 7.1% 4.4%

Source: Reuters. TTM = trailing 12 months. MRQ = most recent quarter.

Looking at these metrics, it's pretty obvious why Riverbed got punished so badly after its most recent revenue miss. It carries a lofty valuation coupled with decelerating sales growth that barely topped networking giant Cisco, while profitability is also on the low end. Application delivery controller, or ADC, maker F5 is relatively cheaper and has better recent growth and profitability. Juniper topped expectations last quarter, but still saw revenue shrink year over year.

What's next?
I'm not ready to throw in the towel quite yet on Riverbed, but the company is undoubtedly in a rough patch right now. The company remains the clear leader within its niche market, and has frequently been named as a possible takeover candidate for that reason. Riverbed and F5 continue to eye each other's pies, as Riverbed is trying to get into ADCs and F5 tries to grow WAN optimization share.

I personally think a Riverbed/F5 merger could do wonders, uniting their respective specialties, but this is purely wishful thinking on my part. Riverbed will need to successfully transition to its new multiproduct strategy to keep me interested, but if it continues to stumble it's going to get the boot out of my portfolio.

Keep up with these networking players with our free watchlist tool, and you'll be the first to know if I end up selling Riverbed and why.

Fool contributor Evan Niu owns shares of Riverbed Technology, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cisco Systems and Riverbed Technology. Motley Fool newsletter services have recommended buying shares of F5 Networks and Riverbed Technology. Motley Fool newsletter services have recommended creating a stock position in Riverbed Technology. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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