Which of These Three Computer Networking Firms Should You Own?
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As businesses move to further integrate their operations through networking and the world becomes increasingly digital, major profits lie ahead for computer networking firms. The highly-specialized industry makes customers satisfaction a key to being profitable. Once a company can trust the computer networking firm with which it is doing business, it often keeps coming back to the same service provider. The following firms have proven their capabilities at retaining clients, something that gives me confidence in their futures.
F5 Networks leads in revenue growth
F5 Networks (NASDAQ: FFIV) has managed to take its business to a new level over the years, and that is reflected in staggering revenue growth. In the last four years, the company has managed to increase its revenue by 110% and is keeping a large chunk of that revenue. The company's profit margin was 20% last year. Is that growth sustainable? Probably.
After all, the company has only recently (in the last five years) differentiated its approach to managing network traffic and that initiative has already paid off. During the early stages of a period of change, companies often face increased expenses which decrease as their operations gain efficiency. That could mean major growth lies ahead for the company as it streamlines operations.
Analysts agree. They expect a 5.9% increase in revenue this year, and an increase of over 11% next year. Due to the recent drop in the company's share price, now could be your ideal time to buy a stake in this company.
Jack Henry has a lock on banking
Jack Henry & Associates (NASDAQ: JKHY) provides community banks with core information processing solutions. This includes transaction processing, automation of business processes, and solutions for managing information. Its operations include nearly 12,000 financial institutions.
Analysts anticipate that the company will earn $2.38 per share next year, valuing the firm at between $33 and $43. The company is now trading at around $48, however. It would take a fairly substantial decrease in price before I'd add it to my portfolio. You should keep an eye on this stock, though, because it continues to prove that it can generate revenue. In fact, the company's revenue increased by about 38% over the last four years. That isn't anything to be overly excited about, but the steady gains make this a secure stock even if it is expensive.
Sykes expands operations
Sykes Enterprises (NASDAQ: SYKE) provides outsourced contact management and business process outsourcing services. Analysts believe that the firm will increase its revenue by 9.5% this year, and by over 3% next year. I think there could be better growth ahead, however. Analysts have continually undershot this company's stock, and last quarter the company beat estimates by nearly 21%. It beat by 25% in the previous quarter as well.
Higher-than-expected growth is justified by the company's expanding operations. The firm just purchased 15,000 square feet of office space in Fort Smith. The company also announced that it had hired 1,000 veterans and military spouses over the last year. While that growth provides some idea of the direction the company is moving, those hires need to be taken into context in comparison with the number of people leaving the company. Sykes hasn't released figures about total additional workers, but investors can assume an uptake given the acquisition of the 15,000-square-foot office space.
While I don't see major growth ahead for the firm, it has shown that it has a reliable lock on its current business. Over the last three years, the company's revenue has increased by only half a percent, but the firm is increasing its profit margin by lowering expenses. Over those three years, the company increased its profit margin from 2.3% to 3.5%.
Where to put your money
Of these three firms, I think that F5 Networks is the most attractive stock. Its proven capability at adjusting operations to meet the needs of consumers shows its commitment to growth. What is most amazing about this company, is its ability to realize that growth while substantially increasing revenue, and return for shareholders.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends F5 Networks. The Motley Fool owns shares of F5 Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!