Zacks bull of the day: Ruckus Wireless

The company didn't make enough noise when it went public, but it's sounding good now.

By Zacks.com Jul 24, 2013 2:39PM

copyright Tetra Images, Getty ImagesBy Brian Bolan

 

Ruckus Wireless (RKUS) didn't make enough noise when it went public, and the noise it has created at earnings hasn't exactly been music to investors ears. Still, it is a Zacks Rank No. 2 ("buy") and the bull of the day.

 

Recently, analysts at both Deutsche Bank and William Blair noted that the WLAN space was seeing some positive purchasing trends. The idea of constrained IT budgets did not come up nor did customers waiting for the latest and greatest technology.


With the way things are going, investors who are looking at the long term might even see a budget flush at the end of this year. The budget flush happens when a business manager spends all available budget all at once to make sure that next year they get an equal amount of budget or more depending on success.


Ruckus Wireless provides Wi-Fi solutions. The company offers SmartCell Gateway, a platform to support and manage its Smart Wi-Fi access points as well as for the integration of Wi-Fi and other services into service provider network infrastructure. The company was incorporated in 2002 and is headquartered in Sunnyvale, California.


Earnings history

Looking to the earnings history, we have a limited data set with only two reports. Worse than having limited data is when they are both misses!


The most recent quarter was expected to show a gain of $0.03, but was instead a break-even quarter. That miss of $0.03 helped push the stock lower by 22% in the session following the earnings release. 


Not too long ago, RKUS went public and had a major flop of an IPO. The stock was offered at $15 and raised $126 million for the company, but closed down 18% to $12.25 on its first day of trading. Since then, the stock seemed to have a stronger signal for investors.


The stock ran to highs of $26 and change before losing the signal again with investors. Now back in the low teens, many are banking on a strong second half for the telco and telco equipment providers to boost shares back to all-time highs.


Earnings estimates adjusted

After its recent IPO analysts have had a chance to fine tune their estimates. The 2013 Zacks Consensus has been trimmed from $0.16 to a nickel. At the same time the 2014 Zacks Consensus Estimate has dropped from $0.30 in January of this year to the current level of $0.16.


Analysts often have trouble with a new company that does not have a full year of data available to discern trends. This is likely the case for RKUS, but the new, lower bar means the company has a much better chance of beating the number.


Valuation

The valuation picture for RKUS is a stiff one. This is often the case for a stock that is fresh off an IPO with only two quarters behind it. With minimal earnings at present the 45 times trailing P/E doesn't seem to really be a fair comparison to the 12x industry average. Similarly, a 304x forward P/E seems to be more of a data error than a basis for an investment decision. At the same time, a 250% growth in earnings from 2013 to 2014 works to level the absurd P/E ratios.


The chart

The chart on this stock is one that doesn't scream a Zacks Rank No. 2 ("buy"). Instead, it looks like one of those stocks that got ahead of itself and has later corrected. Taking advantage of the correction is one thing that I suggest investors look into as the stock bottomed in June and is on the rise. I am very positive on the whole telco equipment space after companies like Google (GOOG) recently missed earnings. The likelihood of a flood of wearable devices coming in 4Q is pretty high, and all of them will need wireless connections... and playing a basket of wireless equipment stocks makes a lot of sense right here.

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service and the editor of Breakout Growth Trader.


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