Fast Growth Spins at F5

10/13/2015 8:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Visit a social networking site, text message, download an app, make an online purchase, or pay a bill online, and you will likely interact with products made by this company, suggests Ingrid Hendershot, editor of Hendershot Investments.

F5Networks (FFIV)—with a name inspired by the movie Twister—has become a global leader in providing products to securely optimize the delivery of network-based applications.

Its core product, called an Application Delivery Controller (ADC), functions like an air traffic controller, determining where network traffic originated, the type of information it contains, and where it is heading.

F5 Networks currently holds an industry-leading 49% ADC market share and a phenomenal, industry-leading 82% gross profit margin.

Further, ADCs serve as the data center gate, which strategically positions F5 Networks to expand into fast-growing areas like cloud-based infrastructure and cyber security.

With over $1.1 billion in cash and marketable securities and no long-term debt, the balance sheet provides a storm shelter and plenty of liquidity to finance acquisitions while also returning cash to shareholders.

During the third fiscal quarter, F5 repurchased $150 million of its shares at an average price of $124.92 per share with $624 million remaining under the current buyback authorization.

During the past five years, F5 Networks has generated forceful double-digit growth with revenues compounding at an 18% annual rate and EPS swirling even higher at a 22% annual rate.

F5 reported solid fiscal third quarter results with revenue up 10% over the prior year period to $484 million and EPS funneling 23% higher to $1.29.

Despite threatening foreign currency storm clouds ahead, management expects fourth fiscal quarter sales to increase 8% to 10% year-over-year with adjusted EPS expected to rise 9% to 11%. Buy.

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