If the stock weakens further I will add more; the worst case scenario looks like $29
Well at $31 we are almost there.
Let's revisit the valuation of Riverbed and Blue Coat now that both have taken a big hit. (again these are not identical companies but large parts of their business "WAN optimization" overlap)
Riverbed 07 estimates $0.64
Riverbed 08 estimates $0.76 (down from $0.80 before earnings)
Keep in mind Riverbed's tax rate will jump from 10% in 07 to about 40% in 08 so that is hurting their earnings growth - all young, once unprofitable companies go through this phase as the move to sustained profitability.
At $31 this gives forward PE of 48x 2007 and 41x 2008 - still not cheap but consider this is a company growing well over 100% year over year (closer to 150% of late in fact) but going forward more like 50-60%.... with expanding margins and operating margins going to 25% in the next year (up from 18%). With that said it might be somewhat dead money for the next 6 months since (a) it disappointed the momentum lemmings of Wall Street and (b) Q1 2008 is seasonally slow and (c) increased tax rate will be a drag to near term earnings. So judging from how these smashed stocks work, there should be some 'dead cat bounce' relatively soon and then a period of "boring" action where it goes sideways for a while; so I would not be surprised to see this from Riverbed's stock in the coming months.
Blue Coat 07 estimates $0.98
Blue Coat 08 estimates $1.28
At $40 this gives forward PE of 41x 2007 and 31x 2008 - for growth rates not quite so heady as Riverbed Technology but strong in their own right. While you also have the slower Q1 2008 spending cycle facing Blue Coat, you don't have the near term tax issues.
Hence for the near term while I will be adding to both, I continue to add to Blue Coat Systems in larger scale. Again, let me remind the risk is Blue Coat Systems disappoints the momentum lemmings in its earnings report in November. But these are short term issues for companies in a space that should be growing by leaps and bounds for a few more years.
In fact, I just bought more Blue Coat Systems as we scrape the 50 day moving average yet again ($40). Unfortunately a break of this level, leads a looooooong way down from here. But at this point these names are beginning to become oversold.
Long both in fund and in personal account
