Is Riverbed Technology's Stock Destined for Greatness?

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Riverbed Technology (UNKNOWN: RVBD.DL  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Riverbed's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Riverbed's key statistics:

RVBD Total Return Price Chart

RVBD Total Return Price data by YCharts

Passing Criteria

3-Year* Change 


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

123.2% vs. (848.8%)


Improving EPS



Stock growth (+ 15%) < EPS growth

11.1% vs. 334.9%


Source: YCharts. * Period begins at end of Q1 2010.

RVBD Return on Equity Chart

RVBD Return on Equity data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity

Took on debt in 2012.


Source: YCharts. * Period begins at end of Q1 2010.

How we got here and where we're going
Riverbed pulls together a solid five out of seven passing grades. However, that hasn't stopped its shares from declining in the past year, and a precipitous fall in net income to near zero could be worrying. Thankfully, Riverbed still displays strong free cash flow growth, which, at its current level, gives the company a rather minuscule 10 price-to-free-cash-flow ratio. Can Riverbed keep rewarding shareholders and turn its declining net income around?

Fool contributor Tim Beyers recently noted the stock's rather yo-yo performance this spring, as investors find themselves between underwhelming guidance and positive news on a major tie-up. Any rebound is sorely desired now, as shareholders were left reeling after a brutal post-earnings sell-off in February, and have yet to recover.

Riverbed's acquisition of OPNET is taking longer than expected to digest, and the company's core WAN business looks to take a big turn for the better next year. Therein lies the problem -- next year is still a ways away. In the interim, Cisco (NASDAQ: CSCO  ) has been fiercely contesting Riverbed's WAN optimization leadership and, with a much larger war chest and much deeper pockets, the networking leader can certainly be viewed as a big threat. Riverbed has to meet this threat head-on with new leaders, as its CFO recently stepped down, and the company has been adding new executives this year, as well. This could be a good thing, but we analysts can only comment from the outside, and results of the new honchos' decisions will take time to filter out. In the interim, its relatively low market cap could entice Cisco to come calling with an open checkbook.

Putting the pieces together
Today, Riverbed has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Once a high-flying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the low down on the routing juggernaut in The Motley Fool's premium report. Click here now to get started.

Keep track of Riverbed Technology by adding it to your free stock Watchlist.

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