Each year, we take a look back in order to look ahead. We do this by industry, by trend, and ultimately by stock. Here's a closer look at Acme Packet (Nasdaq: APKT), Fool style.

Foolish facts

Metric

Acme Packet

Motley Fool CAPS stars (out of 5) **
Total ratings 441
Percent bulls 86.6%
Percent bears 13.4%
Bullish pitches 48 out of 53
Highest rated peers Digi International, Spirent Communications, Network Engines

Data current as of Dec. 30.

Acme Packet looks like the sort of stock you expect would make a short-seller salivate. Not only is the stock priced at more than 100 times trailing normalized earnings, but also its customers are telecom carriers and equipment makers. Alcatel-Lucent (NYSE: ALU), Nokia (NYSE: NOK), Sprint Nextel (NYSE: S) ... these are the sorts of companies that help pay Acme Packet's bills. Fools don't find this encouraging; they give the stock just two out of the maximum five stars.

And yet there's no denying the usefulness of the company's session border controllers. They're essential equipment for establishing and maintaining the sort of voice-over IP calls you'd make with Skype or Google Voice.

Looking back to look forward
With that sort of market position, you'd think there would be a fair amount of the enthusiasm for the stock here in Fooldom. You'd be right, but only because the rise of VoIP was a major theme in this year's tech coverage at Fool.com:

  • Every rich market attracts competitors, and the SBC market is no different. In June, Sonus Networks (Nasdaq: SONS) introduced a new switch for routing IP data. At the time, Foolish colleague Rich Duprey called the company a "worthy competitor" to Acme Packet.
  • Was Rich going too far? Maybe, but the proof is in the customer signings. In November, Acme Packet landed a good one: Sri Lanka's Etisalat Lanka, a subsidiary of UAE-based Etisalat Telecommunications. Investor buying in the wake of the news pushed Acme Packet shares up more than 10% in late trading.
  • Institutions piled in a month later, and stock -- already a four-bagger over the past 52 weeks -- is now on the verge of ending 2010 as a five-bagger.

But that's understandable. Acme Packet's financial performance reveals strong growth across the board as if demand for its pioneering SBCs has accelerated:

2009-2010 Quarterly Performance

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Revenue growth 34.9% 64.7% 62.3% 55.8%
Normalized net income growth 66.4% 200.5% 289.9% 218.1%
Gross margin 80.4% 80.8% 82.0% 81.5%
Return on capital 8.9% 15.2% 15.8% 15.3%

Source: Capital IQ, a division of Standard & Poor's.

And here's what analysts expect from Acme Packet over the next two years, according to data compiled by Capital IQ:

Capital IQ Estimates

2011

2012

Revenue estimate $293.4 million $384.8 million
Normalized profit per share estimate $1.03 $1.35

Source: Capital IQ. Data current as of Dec. 30.

Foolish outlook: bullish
Growth is the primary theme here. Acme Packet is on track to grow per-share earnings 80% over the next two years -- from $0.75 a share to $1.35 a share. The stock may trade for a premium, but that's only because the growth supports it.

Also, consider the market. Infonetics Research, a telecom market research company, estimates the cumulative revenue from SBCs will exceed $2.5 billion between now and 2014, and also that demand for SBCs will increase 44% annually over the same period. With Acme Packet's revenue still lingering at less than $300 million, there's plenty of room for the company to grow beyond its present valuation.

Now it's your turn to weigh in. What do you think of Acme Packet's prospects at current prices? Use the comments box below to explain your thinking. You can also rate Acme Packet in Motley Fool CAPS.

What will be next year's best stock? The Motley Fool has created a brand new free report called "The Motley Fool's Top Stock for 2011." In it, we reveal the little company set to profit from the broadband Internet expansion. Get instant access by clicking here -- it's free.

Interested in more info on the stocks mentioned in this story? Add Acme Packet, Alcatel-Lucent, Nokia, Sprint Nextel, or Sonus Networks to your watchlist.

Acme Packet is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this story at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. When it comes to stocks, the Fool's disclosure policy is a lookie-loo.