When I last wrote about Cavium (NASDAQ:CAVM), I was enthusiastic about the product launch and growth potential of this small(ish) semiconductor company, but very conflicted about the valuation and expectations. Since then, the company has offered up underwhelming guidance, a slower-than-expected launch of key new products, and a large acquisition that offers questionable value and a definite risk in how Cavium is perceived and valued.
The shares are only down about 12% from the time of that last article, but that's due in part to a strong rally off June/July lows. At the worst, the shares were down about a third in the intervening period. Looking ahead, I still have a lot of mixed feelings about this stock. I do genuinely believe that there is strong revenue growth potential in Octeon, Thunder, XPliant, LiquidIO, and LiquidSecurity and that Cavium delivers very good products for enterprise data center and service provider customers with high-end needs.
While I expect less from Cavium than I did before, the expectations are still robust, with near-term revenue growth above 20% and healthy long-term FCF margins. My new fair value(s) in the $50s offers upside, and there could still be a "disappointment discount" in the share price, but Cavium definitely needs to get back onto a "beat and raise" path.
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Cavium Networks Needs To Rebuild Its Growth Stock Cred