As I recently wrote in reference to F5 (NASDAQ:FFIV), growth investors are unforgiving when growth erodes, and Cavium (NASDAQ:CAVM) shares have not done well lately
as this chip company's revenue has continued to decelerate ahead of
what bulls hope will be significant product ramps. While Xpliant,
LiquidIO, and ThunderX could add about $2 billion to Cavium's
addressable market relative to 2015, companies like Intel (NASDAQ:INTC) and Avago (NASDAQ:AVGO) are hardly pushovers and the adoption of ARM servers has been disappointing so far.
It takes ambitious growth expectations to support a fair
value in the $60s and the company's margin prospects over the next
couple of years really don't support a corresponding EV/revenue
multiple. That said, Xpliant, LiquidIO, and ThunderX are really just
getting started and the company could be in a position to exploit
M&A-related disruptions in its sector. This is by no means a safe
stock, or one with low expectations, but the company's technology offers
high performance, programmability, and cost of ownership attributes
that could grab meaningful share in markets that can support multiple
billions in long-term revenue.
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Cavium Still Navigating Lofty Expectations
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