The High And The Mighty: Redback Networks RBAK, CN, CHA, BLS, T, VZ, ALA, NT, FTE, CSCO, JNPR, TWX
There is no denying that Redback Networks has run like a scalded dog, from a 52-week low of $5.46 to a high of $24.99. Even with the Nasdaq sell-off, the stock trades at $23.81. Redback, which describes itself as a provider of next-generation networking systems recently announced deals with China Netcom and the largest subsidiary of China Telecom. Redback is obviously running with a fast crowd.
Redback is also planning to buy back 3.5 million of its own shares, but, if past is prologue, that is not always a good sign. Look at TimeWarner.
A research analyst from RBC Capital Markets was recently quotes by Forbes saying that investing in Redback was not for the faint-of-heart, because so much of the company’s backlog is with BellSouth. As a matter of fact, Redback relies heavily on its business from BellSouth, AT&T, Verizon, Alcatel, Nortel, R-Core, and France Telecom. If one of more of these clients begins to more away from Redback, the impact on financial results could be considerable.
Redback’s results have certainly earned it a strong stock performance. In Q1 06, ending March 31, revenue jumped to $57.9 million from $34.3 million in the same period in 2005. Gross profit rose from $17.9 million to $32.5 million. But, expenses rose too much for the company to show a profit, and the loss from operations was $2.4 million, better than the loss of $7.1 million in the same period a year ago.
The other important issue is that larger competitors like Juniper Networks are lurking in the woods. At $57 million a quarter, Redback is not yet a giant.
Redback now has a 7.8 price to sales ratio according to Yahoo!Finance. Juniper’s is less than 4.0 and Cisco’s is 4.7.
That’s too heady a valuation for a company with competition of this size and scope. It will take a lot more proof of the business model to keep it at these levels.
Douglas A. McIntyre
Redback is also planning to buy back 3.5 million of its own shares, but, if past is prologue, that is not always a good sign. Look at TimeWarner.
A research analyst from RBC Capital Markets was recently quotes by Forbes saying that investing in Redback was not for the faint-of-heart, because so much of the company’s backlog is with BellSouth. As a matter of fact, Redback relies heavily on its business from BellSouth, AT&T, Verizon, Alcatel, Nortel, R-Core, and France Telecom. If one of more of these clients begins to more away from Redback, the impact on financial results could be considerable.
Redback’s results have certainly earned it a strong stock performance. In Q1 06, ending March 31, revenue jumped to $57.9 million from $34.3 million in the same period in 2005. Gross profit rose from $17.9 million to $32.5 million. But, expenses rose too much for the company to show a profit, and the loss from operations was $2.4 million, better than the loss of $7.1 million in the same period a year ago.
The other important issue is that larger competitors like Juniper Networks are lurking in the woods. At $57 million a quarter, Redback is not yet a giant.
Redback now has a 7.8 price to sales ratio according to Yahoo!Finance. Juniper’s is less than 4.0 and Cisco’s is 4.7.
That’s too heady a valuation for a company with competition of this size and scope. It will take a lot more proof of the business model to keep it at these levels.
Douglas A. McIntyre
posted by douglas mcintyre at 5:16 AM
Subscribe
<< Home