The giant of data networking stocks, Cisco Systems
Big corporations are learning to love the Internet, and demand continues to pick up in niche applications such as traffic management, security, and voice over Internet. By the looks of the latest quarter's numbers, that trend is benefiting both F5, which specializes in software that speeds up Internet servers, and Ethernet networking vendor Extreme.
Both companies reported big gains. F5 saw first-quarter revenue jump 66% from last year, with operating margins expanding to 24%. Net income for the quarter was $10 million. Extreme saw its second-quarter income grow to $10 million from a loss of $5.6 million a year ago, while revenue climbed 20% to $100.3 million.
To fend off Cisco, both F5 and Extreme need to keep their technology leads and fortifying partnerships. Ramping up new products, Extreme has also inked global distribution deals with Avaya, Dell
Fools take note: F5 and Extreme are quintessential momentum stocks. Like other small-cap tech stocks, they offer plenty of market price volatility. That can spell opportunity or danger for investors, depending on where the price happens to be.
Extreme Network's debt load is higher than I would like, and the firm has a history of technology hiccups. That said, at $6.58, Extreme might be worth a closer look right now. Extreme trades at 22 times 2005 earnings and 1.5 times EV/sales. With the prospect of accelerating revenues and improved margins, this little stock could produce some pleasant surprises.
F5 has zero debt and about $220 million in cash. Even so, at $49.39, F5 Networks trades at about 45 times 2005 earnings -- a rich premium to its peers. But given the stock's up and downs, another opportunity might arise to buy at a much lower price.
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Fool contributor Ben McClure doesn't own shares of any companies mentioned in this article.
