How Low Can Acme Packet Go?

Shares of Acme Packet (Nasdaq: APKT  ) hit a 52-week low today. Let's look at how it got here and whether clear dark clouds are ahead.

How it got here
The past 12 months have been particularly rough for the session border controller, or SBC, specialist, giving back all of the gains from the 12 months before it. Shares now stand near $25, just as they did in May 2010, after reaching as high as $84 around May 2011.

Investor expectations were high for the company, as the clear leader (57% last year) in the SBC market, which will help wireless carriers beef up their infrastructure to the inevitable shift to voice over Internet protocol, or VoIP. The days of carriers operating voice and data networks are numbered, as everything will soon be transmitted as just data.

That transition just isn't happening as quickly as Acme Packet had thought, and the company's third- and fourth-quarter earnings results left investors wanting more as big deals at customers AT&T and Verizon were taking longer to close than expected. I think its first quarter will be the bottom for its business, and 2013 will be an inflection point as voice over LTE, or VoLTE, begins to roll out.

How it stacks up
Let's see how Acme Packet stacks up with some of its peers

APKT Chart

APKT data by YCharts

Let's add some more fundamental metrics for deeper insight.

Company

P/E (TTM)

Sales growth (MRQ)

Net margin (TTM)

ROE (TTM)

Acme Packet 53.9 (4.2%) 10.9% 7.8%
Cisco Systems (Nasdaq: CSCO  ) 12.4 6.6% 16.1% 14.9%
Juniper Networks (Nasdaq: JNPR  ) 31.2 (6.3%) 7.1% 4.4%
Sonus Networks (Nasdaq: SONS  ) NM (4.4%) (2.6%) (1.6%)

Source: Reuters. TTM = trailing 12 months. MRQ = most recent quarter. NM = not meaningful.

Acme Packet is definitely pricey, but it leads a growing market. Cisco offers SBCs, but its market share plays second fiddle to Acme Packet. Juniper picked up SBC technology from its acquisition of Kagoor networks in 2005, but subsequently killed its offerings in order to integrate SBC functions into its existing products. Sonus just reported first quarter earnings, predicting a loss next quarter.

What's next?
Acme Packet's long-term story remains compelling. The main risk is that the SBC market doesn't grow as fast as it expects, but so long as it does, over time Acme Packet will reap the rewards from its leadership. As carriers continue the migration toward 4G LTE data speeds, the VoLTE transition will soon follow.

Keep an eye on these SBC players and the development of the market by using our free watchlist feature. Start by adding these companies:

Fool contributor Evan Niu owns shares of AT&T and Verizon Communications, 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. Motley Fool newsletter services have recommended buying shares of Acme Packet. 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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