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F5 Networks (FFIV) Poised for Long-Term Growth Despite Risks

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A successful portfolio manager understands the importance of adding well-performing stocks at the right time. Indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.

One such stock that investors need to hold on to right now is F5 Networks Inc. (FFIV - Free Report) . Though there are a few concerns, these are short-lived. So, the stock has the potential to perform well in the long run.

F5 Networks’ share price movement has been quite favorable. In the last one year, its shares returned 45.48% compared with just 9.57% gain recorded by the Zacks categorized Internet Software industry.

What’s Driving F5 Networks?

F5 Networks provides products and services to manage Internet traffic worldwide. Revenue growth seems to be steady, positively impacted by strength across all its business segments and higher software revenues.

We believe that the company’s product refreshes will boost revenues, going forward. It ought to be mentioned that the company’s GBB pricing strategy and its BIG-IQ platform remain tailwinds. Moreover, these initiatives are expected to expand the company’s total addressable market and result in client wins. Better execution and focus on enterprise and service providers have placed F5 Networks well in the application delivery controller market.

Furthermore, the company also provided encouraging second-quarter guidance. For the second quarter of fiscal 2017, F5 Networks expects revenues in the range of $518 million to $528 million. The Zacks Consensus Estimate is pegged at $523 million. The company expects non-GAAP earnings for the second quarter of fiscal 2017 in the range of $1.95 per share to $1.98 per share. The Zacks Consensus Estimate is pegged at $1.52 per share.

Notably, the company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals.

It has posted a positive earnings surprise in two out of the last four quarters, with an average positive surprise of 1.57%.

Given its long-term earnings per share growth rate is 11.86% and VGM Style Score of “B”, we believe that the stock still has much upside potential.

Risks Remain

F5 Networkscurrently has a trailing 12 month Price/Book Value (P/B) ratio of 7.87. This level compares unfavorably to some extent with what the industry saw over the last year. The ratio is higher than the average level of 6.88 and is toward its higher end of the valuation range over this period. Hence, valuation looks slightly stretched from a P/B perspective.

Also, a volatile spending atmosphere and competition from Juniper Networks Inc. (JNPR - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) remain concerns.

F5 Networks has a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Seagate Technology plc (STX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Seagate has a long-tern expected earnings growth rate of 8.17%.

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