Barclays Issues 2012 Guidance for Riverbed Tech

Interesting comments from Barclays regarding Riverbed Tech (RVBD) back on the 22nd. Guess I missed their report due to the holidays. The numbers they've issued are interesting because it highlights the investing conundrum involving RVBD.

Barclays upped 2011 estimates and issued 2012 numbers. On the face, RVBD trades at nearly 50x the street estimates for 2011 earnings of $.76. That PE ratio is extremely high and places RVBD on our list for pruning our holdings. Might be time to take our money and run.

What makes the decision interesting is that as the calendar rolls into 2011, the market will begin looking towards 2012 numbers which Barclays estimate at $1.09 and possibly as high as $1.3. The best guess lowers the PE to a manageable 31 or roughly in line with the growth rate around 30%. Now if RVBD hits closer to the upper estimate the PE drops to 26 and a ratio much lower then the growth rate at that point. Hence, the dilemma of investing in high growth stocks. They only appear expensive for a short period when growth is that strong.

For now, Stone Fox Capital continues to hold our remaining shares after pruning portions earlier this year much too soon unfortunately.


Barclays analyst says, "Riverbed is continuing to gain share in a healthy WAN optimization market: We believe WAN optimization demand remains robust...We lift 2011 EPS materially and introduce 2012: We lift and introduce our 2011 and 2012 revenue growth assumptions from 25% to 31%/25% respectively. This drives 2011 split-adjusted EPS of $0.84 and 2012 EPS of $1.09. Less conservative assumptions - 38% and 32% sales growth and a 35% operating margin - yield 2012 EPS of $1.30...We expect momentum to continue for this beat-and-raise story." 

Disclosure: Long RVBD


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