I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series. We'll be taking a closer look at many of the market's great growth stocks to see which of them show real, numerically relevant signs of sustainability.
Next up in our series is Akamai Technologies
We've seen some good signs. Last month, insiders began a buying spree at around $38.78 a share. CEO Paul Sagan added 15,000 shares to his stake, while company president David Kenny bought 25,000 and director Peter Knight got 47,950. Knight was the last to buy, at an average price of $41.70 a share.
Foolish facts
|
Metric |
Akamai |
|---|---|
|
CAPS stars (5 max) |
**** |
|
Total ratings |
3,047 |
|
Percent bulls |
95.9% |
|
Percent bears |
4.1% |
|
Bullish pitches |
425 out of 446 |
|
Highest rated peers |
On2 Technologies, iPass, PHOTOCHANNEL NETWORKS |
Data current as of Sept. 7.
Fools like Akamai, even if some think the stock has run too far, too fast. "The fact that the stock jumped over 20% the day they announced earnings despite reporting almost ZERO profit and revenue growth should have been a big sign," wrote icu81mi recently.
And that's from a Fool who likes Akamai:
I really like this company long term, I even own a few shares, but the stock has gotten way ahead of itself. I hedged before earnings, which I'm glad I did but I'm hanging on to that hedge a little while longer because some of this froth has got to go.
The elements of growth
|
Metric |
Last 12 Months |
2009 |
2008 |
|---|---|---|---|
|
Normalized net income growth |
(4.5%) |
(7.3%) |
65.1% |
|
Revenue growth |
12.8% |
8.7% |
24.3% |
|
Gross margin |
73.5% |
73.5% |
76.9% |
|
Receivables growth |
13.9% |
10.5% |
17.4% |
|
Shares outstanding |
181.6 million |
171.2 million |
169.4 million |
Source: Capital IQ, a division of Standard & Poor's.
There's a confusing mix of numbers in this table, not all of which are good. Let's review:
- Bad news first: Revenue and normalized net income growth have proven inconsistent. That's usually a bad sign, especially for a market leader.
- Nor do we like to see a rising share count. In Akamai's case, in-the-money exercises of employee stock options are helping to create the dilution.
- Fortunately, gross margins remain high and receivables growth is moderate and in line with what we've seen historically. (Akamai tends to sign contracts, deliver content, and then collect. Healthy receivables growth tends to lead income growth for this Rule Breaker.)
Competitor checkup
|
Competitor |
Normalized Net Income Growth (3 years) |
|---|---|
|
Akamai |
23.8% |
|
AT&T |
11.6% |
|
F5 Networks |
15.1% |
|
Internap Network Svcs. |
Not material |
|
Level 3 Communications |
Not material |
|
Limelight Networks |
Not material |
Source: Capital IQ, a division of Standard & Poor's. Data current as of Sept. 2.
This table is far more reassuring. Not only is Akamai the fastest grower, but also the lack of material long-term income growth among direct competitors such as Level 3 and Limelight is demonstrative of Akamai's market power.
Grade: sustainable
Akamai leads a volatile market that's subject to pricing pressure and attractive to big data center operators, such as AT&T. And yet Akamai has faced big competitors before and come out ahead. It's been a market leader for more than a decade. I see no reason why that can't continue.
Now it's your turn to weigh in. Do you like Akamai at these levels? Would you make it one of our 11 O'Clock Stocks? Let the debate begin in the comments box below, and when you're done, click here to get today's 11 O'Clock portfolio pick. You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.
For further Foolishness featuring Akamai Technologies:
