Buy, Sell, or Hold: Acme Packet

Shares of Acme Packet (Nasdaq: APKT  ) slid 16% last week, after the company issued weaker-than-expected guidance for its second quarter. With the stock trading at its lowest level in two years around $15 a pop, it could be an opportunity for investors to pick up shares at a discount. However, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it in the market. Let's take a closer look at Acme Packet and evaluate whether investors should buy, sell, or hold this networking equipment maker.

Buy
Acme Packet was the leader in the SBC, or Session Border Controller, market last year, with about 57% share. Today, more than 1,600 customers in 107 countries support the company's strong market position.

Wireless carriers including AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) are rapidly growing their LTE networks to keep up with increased demand for faster 4G LTE data speeds. This is good news for Acme Packet and its voice-over-LTE network, which could be a significant growth driver for the company over the long run. New product offerings including SIP trunking, which improves performance for enterprise customers, should also boost earnings for Acme down the road.

Sell
The network solutions provider spooked investors again recently when it lowered its second-quarter guidance. Once again, Acme blamed cutbacks in telecom spending by some of its largest clients including AT&T, Verizon, and Sprint Nextel (NYSE: S  ) , stating, "Our top line results were principally impacted by continued weakness in the North American service provider market."

Fellow Fool Evan Niu shared the disappointing forecast last week along with his decision to close his outperform CAPScall on the stock. As he pointed out, this isn't the first time Acme has lowered its guidance in recent quarters. According to Reuters, Acme's SBC business is showing signs of slowing growth, which is another headache for the company as it tries to regain investor confidence.  

Hold
Acme remains a leader in the space, despite the gloomy near-term challenges it faces. The company's market position along with its healthy profit margins has some investors hoping for a turnaround. A solid balance sheet with zero debt is another positive. In fact, analyst James Kisner from Jefferies & Co. points out that Acme has grown its cash reserves since the previous quarter.

Current shareholders may wish to hold on to shares at least until the company reports earnings later this month. However, the longer-term outlook for Acme remains murky.

Final answer?
Concerns over enterprise spending have put a lot of pressure on Acme. Still, from where I sit it doesn't seem management has a handle on the challenges it faces, which is why I think the stock is a sell today. Shares are down nearly 80% so far this year, and unfortunately, with growth in SBC slowing, the risks outweigh the benefits.

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Fool contributor Tamara Rutter does not own shares of any of the companies mentioned in this column. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insight and investing advice. 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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