Will F5 (FFIV) Stock Recover To Its Pre-Inflation Shock Level Of $250?

BRAZIL - 2020/02/15: In this photo illustration the F5 Networks website seen displayed on a ... [+] smartphone. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

F5 stock (NASDAQ NDAQ : FFIV) currently trades at $146 per share, around 9% above its level in November 2022, and it seems like it has little room for gains. F5 FFIV saw its stock trading at around $153 in June 2022, just before the Fed started increasing rates, and is now 4% below that level. The stock has gained a mere 1% since its low in September 2022 compared to the S&P 500, which gained about 18% during this period. The underperformance of FFIV stock over recent months can be attributed to its downbeat guidance. Although the rally in broader markets has been driven by a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan, investors still have concerns about a potential recession. The steady increase in F5’s revenues over recent quarters has failed to spark any rally in the stock thus far.

Returning to the pre-inflation shock level means that FFIV stock will have to gain around 70% from here. However, we do not believe that will materialize any time soon, and we estimate F5’s valuation to be about $153 per share, implying just 4% gains. This is because the recent uncertainty in the financial sector has made investors concerned about a potential recession. The company’s management has cut its revenue and earnings guidance for fiscal 2023, citing macroeconomic factors and their potential impact on consumer spending.

Our detailed analysis of F5’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

FFIV Performance During 2022 Inflation Shock

In contrast, here’s how FFIV stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

FFIV and S&P 500 Performance During 2007-08 Crisis

FFIV stock declined from $38 in September 2007 (pre-crisis peak) to around $20 in March 2009 (as the markets bottomed out), implying FFIV stock lost over 45% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $53 in early 2010, rising 165% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

FFIV Fundamentals Over Recent Years

FFIV revenues rose from $2.2 billion in 2019 to $2.7 billion in 2022, led by services and products revenues growth due to increasing demand for the company’s services and entry into new markets. Despite higher revenue, reported earnings decreased from $7.12 in 2019 to $5.34 in 2022 due to a decline in operating margins, which fell from 23.1% to 15.0% over this period due to higher expenses, including a rise in component costs. Our F5 Operating Income Comparison dashboard has more details.

Does F5 Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

F5’s total debt rose from nil to $350 million in 2022, but as of the latest quarter, the company has cleared its debt. Its total cash decreased from around $1 billion to $0.7 billion over the same period, and it generated $510 million in cash flows from operations in the last twelve months. The company has no debt burden and a good cash balance, so it appears to be in a comfortable financial position.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe F5 stock has the potential for good gains once fears of a potential recession are allayed. That said, a possible decline in consumer spending and a steady fall in the company’s operating margins means it may take a while for F5 stock to reach its pre-inflation shock highs of over $248.

While FFIV stock looks like it has little room for growth, 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 TGT .

With inflation rising and the Fed raising interest rates, among other factors, F5 stock has risen just 2% this year, underperforming the broader indices, with the S&P500 index up 11%. Can it drop from here? 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? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

FFIV Return Compared With Trefis Multi-Strategy Portfolio

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates

FFIV - F5 Networks, Inc.

Business Wire

SEATTLE, May 31, 2023--F5, Inc. (NASDAQ: FFIV) today announced that it will participate in the BofA Global Technology Conference. F5’s fireside chat presentation will be webcast live beginning at 1:40 p.m. ET on Thursday, June 8, 2023. Interested attendees can access the live webcast via the Investor Relations section of f5.com or via this link. An archived version of the webcast will be available on F5’s Investor Relations page.

NIMT joins global network for testing procedures

Pol.Lt.Gen. Pornchai Suteerakune, Director, National Institute of Metrology (Thailand), or NIMT, Ministry of Higher Education, Science, Research and Innovation, presided over the opening of MEDEA 3.0: Metrology - Enabling Developing Economies in Asia's Calibration Capabilities for Infusion/Syringe Pump Analyzers, and 2nd Workshop on Testing Procedures of Infusion Pump and Calibration Procedure Guidelines of Infusion Device Analyzer and Preparation of Pilot Study on Infusion Device Analyzer Comparison, held from 3 to 5 April 2023 in Thailand in cooperation with Metrology - Enabling Developing Economies in Asia (MEDEA) and APMP (Asia Pacific Metrology Programme) Medical Metrology Focus Group.

Pol.Lt.Gen. Pornchai said, 'Infusion pumps are medical devices widely used in hospitals. In order to confirm that the pumps are still working properly, regional guidelines will be developed under AMPMP as a reference for testing the infusion/syringe pumps, for calibrating infusion device analyzers, and to facilitate development of infusion device analyzer calibration facilities in APMP DEC (Developing Economies Committee).'

'This program will bring examples and experiences from APMP to our domestic and international audiences. We hope that by learning through such examples and experiences, we could improve and develop our regional guidelines that best fit our environment and meet international practice standards.'

The event was held at Centara Grand Hotel at Central Plaza Ladprao, Bangkok (3-4 April 2023) and NIMT Klong Ha, Pathum Thani Province (5 April 2023).

Participants came from many countries, including the Philippines, Mongolia, Indonesia, Bangladesh, Vietnam, Kiribati, India, South Korea, Sri Lanka, and Thailand.