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Supported by a fine fourth-quarter report, shares of Aruba Networks (Nasdaq: ARUN ) jumped as much as 19% on Friday. The sudden boost erased nearly four months of bad market blood in one fell swoop.
Analysts were expecting the maker of enterprise-grade Wi-Fi gear to report adjusted earnings of $0.17 per share on $137 million in sales. The company reported non-GAAP earnings of $0.18 per share on $139 million in revenue, edging out estimates on both counts.
CEO Dominic Orr said that his target markets look strong: "Our differentiated mobile-centric approach to the access network and value proposition continues to resonate with customers," he said. "The global proliferation of mobile devices and the [Bring Your Own Device] trend fundamentally change how users securely connect to their enterprise resources." In other words, smartphones and tablets are changing the way businesses manage their networking needs -- and Aruba is happy to ride that wave.
But a 6% earnings surprise with 1.5% of unexpected revenue strength is hardly enough to fuel an overnight 19% price gain. Indeed, the big market move didn't start until a flood of admiring analyst comments started pouring in.
Analyst firm Needham, for one, noted that Aruba is handling Cisco Systems' (Nasdaq: CSCO ) recent moves in the Wi-Fi space with aplomb. Growth rates have fallen from Aruba's customary 30% levels to the 20% range, but at least they seem to have stabilized by now. Needham reiterated its buy rating on the stock and raised its price target by 15%, to $23 per share.
Elsewhere, Jefferies bumped Aruba's target price from $16 to $18 per share with a stable hold rating. "The company is executing well and the business environment appears to have recovered from a rocky [third quarter]," the firm said.
These comments also pulled up some smaller players in the corporate Wi-Fi space by the bootstraps. Chip designer DragonWave jumped nearly 5% and radio-signal technologist Ubiquiti Networks (Nasdaq: UBNT ) gained more than 6%. The rationale here is that strong business for Aruba would also be positive news for smaller partners and competitors.
Don't be too quick to jump on that bandwagon, though: This rising tide doesn't lift all boats equally. Ubiquiti got a 40% haircut when it reported weak results earlier this month. DragonWave's second-quarter report is due in early October, and that company will stand or fall on its own merits.
If you had to pick one subsector of computer networking that shines brighter than all the rest right now, mobility would be it. But Aruba isn't the strongest stock in that exploding sector. To find out who we think is the best bargain, read the Fool's new free report on the stock we think will win the next trillion-dollar revolution. To pick up a complimentary copy of the report, simply click here now.