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Arista Networks- Waiting for the Other Shoe to Drop

By Rick Walter
02/14/20
4:00 PM

Cloud storage and solution companies are the next up and coming hot area for investment. Companies like Amazon and Microsoft are competing mightily for this business and winning. However, there are other smaller or mid-size players in the field that could also be huge winners in this growing, lucrative market.

I started following Arista Networks in the 3rd quarter of last year. Since that time the stock has fluctuated from a high of $249.49 on Sept 12, 2019, to a low of $185.30 on November 1, 2019. The stock since then has ground back up to the $240 range on February 12, 2020, only to fall back to the $218 price levels after earning announcements on February 13, 2020.

The numbers weren’t bad but they weren’t that good either. I listened in on the company’s webcast yesterday and I was not impressed with the presentation. The overall guidance for the upcoming first and second quarters for this year was very confusing. I couldn’t tell if the company was forecasting breakeven for the upcoming quarters, a slight loss, or a huge loss. Based on the previous 3rd quarter webcast last year, company officials reiterated that one of their major customers- (a cloud titan) who’s responsible for a good portion of their revenues, had not made a commitment or firm decision to continue to use their products and services going forward. Company officials said that they had to adjust to this uncertainty going forward. Fair enough.

However, in the fourth quarter, nothing was mentioned of this pending doom to the company’s revenue base and bottom-line. Instead, the company focused on collective doom stemming from the cloud industry itself. Huh! Analyst after analyst threw a multitude of questions that would or could shed light on the growth issues but were unable to pierce the cryptic responses from company officials.

This company initially fit our criteria for innovative product and services, consistent earnings per share growth and stable management with the ability to identify the risks in the markets and make prudent decisions to adjust to those risks. However, this company fails miserably in the management section. Just listen in on their earnings webcast and you will get an idea of what I am talking about. Is the stock a buy? We are uncertain, because no one could get a straight answer during the earnings call. Namely, “why is the company experiencing slower growth than most companies in one of the hottest growth markets today?”

We are holding off purchasing any more shares in this company until we can get better and clearer guidance. If management can’t give you a clear answer, then why should we or any other investor invest in the company?

We own shares of stock in Arista Networks.

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Cyberark’s Stock Price Collapses

By Rick Walter
Updated: 02/13/2020

Cyberark Software Ltd., CYBR stock cratered today after their earnings announcement. I listened in on the company’s webcast on Thursday and the presentation was pretty solid. There was nothing in the webcast that was materially incorrect or shockingly bad. The company reported solid numbers in revenues, gross margins, r & d, sales and marketing, and general and administrative expenses, yet the stock sunk like a stone in a sea of positive earnings announcements.
The company reported earnings per share of .97 per share versus expected fourth-quarter earnings per share of .81 per share, a 20% increase. Revenues came in at $129.66 million versus expected revenues of $126.67 million, 2.36%. Year over Year (Y/Y) revenues were up 27.72% with net income also up 88.39%.

From a valuation metric, the stock was fairly valued as of Wednesday’s price of $138.60. Today’s collapse puts the stock in undervalued territory by at least 10% based on current valuation computations.

We believe based on the line of questioning by analysts on the earnings webcast, that there may be some confusion on whether the company grew earnings per share and revenues by actually adding new customers or manipulated their numbers by reformulating or remixing the pricing of their existing product and product solutions to generate higher revenue fees thereby increasing fourth-quarter earnings per share and revenues.

Is the stock still a buy? We think so based on year over year numbers and because the stock fits our criteria for investment based on their innovative cyber-security products, consistent earnings per share growth and excellent risk management stewardship. However, proceed cautiously.

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Broadcom continues to deliver!

By Rick Walter

Updated: 01/24/2020

Can Broadcom Inc. (symbol: AVGO) continue to deliver the goods? On December 18th, 2019, the company announced that they were looking to sell one of its wireless-chip units. The move would accelerate the company’s shift away from its roots as a semiconductor maker. According to some company officials, the unit could be worth up to $10 billion. I personally thought that the move generated a confusing long-term growth outlook for the company, because wireless chips have always been the backbone of the company’s core businesses. Selling-off one of the units that generate core revenues for the business, I believe, caught many investors and analysts by surprise. The company’s stock sank from a high of $320 a share to roughly $301 shortly thereafter. However, since we are not privy to the company’s long-term business strategy, certain business moves may at first glance seem odd and confusing to investors looking in. On January 23, 2020, the company recently announced a multi-year supply agreement with Apple Inc. AAPL to provide wireless components for Apple products into 2023, a deal that could generate billions of dollars- $15 billion in revenues. The announcement sent the stock roaring to $329 a share on Thursday January 23, 2020.

Our success as traders and advisors depends on companies like Broadcom. We look for companies that lead by innovation and consistently grow shareholder’s value. Suffice to say, that even though recent business moves by the company may have had investors like us scratching our heads, we still believe that Broadcom Inc. AVGO, still fits the bill of a company that can continue to grow earnings and deliver consistent returns to shareholders over the next five years which bodes well for higher trading profits and better returns on our client portfolios.

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Rickster’s Market Review -3/19/2018

By Rick Walter Monday was an extremely tough trading day. Early market indicators suggested a mild trading day but it was far from it. Indices headed downward and stayed down most of the day with the DJIA closing at 24610.91 down -335.60, the S&P 500 closing at 2712.92 down -39.09, and the Nasdaq closing at 7344.24 […]
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