What’s Next For F5 Stock After A 40% Fall Since 2021?

After a 10% fall since early February this year, F5 Inc. stock (NASDAQ: FFIV) has some room for growth, in our view. F5 stock has declined from $157 in early February to $141 now. This marks an  underperformance with the -5% return for the broader S&P500 index. Looking at a slightly longer term, FFIV stock is down 42% from levels seen in late 2021. This can be attributed to 1. the company’s P/S ratio, which plunged 45% to 3.1x trailing revenues from 5.7x in 2021, partly offset by 2. a 4% rise in F5 revenue to $2.7 billion, and 3. its average shares outstanding falling 0.6% to 60 million. Our interactive dashboard, Why F5 Stock Moved, has more details.

F5 is a networking services and security provider. It has seen its sales rise over the recent years, led by growth in both services and products revenues due to rising demand for the company’s services and entry into new markets. However, its operating margin has consistently declined from 27% in 2018 to 14% in the last twelve months due to higher expenses, including a rise in component costs. Our F5 Operating Income Comparison dashboard offers more details. The company’s bottom line decreased 6% y-o-y to $10.19 in fiscal 2022, led by over 250 bps net margin contraction. For fiscal 2023, F5 expects its sales to rise between 9% and 11% and its adjusted earnings to grow in the low-to-mid teens.

Looking at valuation, we find that F5 stock has room for growth. At its current level of $141, FFIV is trading at 3.1x its trailing twelve months’ revenues, compared to the last three-year average of 4.3x. Our F5 (FFIV) Valuation Ratios Comparison has more details. We estimate F5’s Valuation to be $166 per share, about 18% above the current market price, and represents a 3.7x P/S multiple based on TTM revenues. A slight decline in F5’s P/S multiple compared to its historical average makes sense, given the consistent decrease in operating margin.

While FFIV stock looks like it can see higher levels, it is helpful to see how F5’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for F5 vs. Target.

With inflation rising and the Fed raising interest rates, among other factors, F5 stock has fallen 2% this year. Can it drop more? See how low F5 stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 3/27/2023
[2] Cumulative total returns since the end of 2016

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