While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Ruckus Wireless Inc (RKUS) rallied 4% in premarket trading Thursday after Goldman Sachs upgraded the carrier-class Wi-Fi solutions specialist from Buy to Conviction Buy.
So what: Along with the upgrade, analyst Simona Jankowski planted a price target of $18 on the stock, representing about 55% worth of upside to yesterday's close. So while momentum traders might be turned off by Ruckus' year-to-date price weakness, Jankowski's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.
Now what: According to Goldman, Ruckus' risk/reward trade-off is particularly attractive at this point. "Ruckus shares have underperformed the market, down 20% YTD vs. the S&P up 8% and the Russell 2000 flat despite two consecutive beat and raise quarters, expectations for 25% revenue growth this year, and a discounted multiple," said Jankowski. "We believe this has been due to investor concerns regarding Wi-Fi technology commoditization and higher than anticipated opex this year. However, we expect strong secular tailwinds, share gains, and recent new product introductions with high margin profiles to drive estimate upside and multiple rerating for Ruckus, which we view as the best secular growth story in our group." Given Goldman's solid stock-picking track record -- currently ranked in the top 15% of our CAPS community -- growth-oriented Fools might want to take a closer look at Ruckus.
