Tech stocks are witnessing a significant sell-off on concerns over expected interest rate hikes. However, surging demand for efficient networking solutions to facilitate remote working and digital operations and significant funding from the infrastructure bill to improve broadband access should drive the networking industry’s growth.
Continuing demand and advancements in networking solutions should help the industry thrive. Growing investor optimism in this space is evidenced by the iShares North American Tech-Multimedia Networking ETF’s (IGN) 3.2% gains over the past nine months versus the SPDR S&P 500 Trust ETF’s (SPY) 1.7% returns. The global network infrastructure market is expected to grow at a 3.9% CAGR to $229.74 billion by 2026.
Given this backdrop, beaten-down networking stocks Extreme Networks, Inc. (EXTR) and AudioCodes Ltd. (AUDC) appear to us to be ideal bets now. These stocks are well-positioned to deliver significant returns in the coming months.
Extreme Networks, Inc. (EXTR)
EXTR provides wired and wireless network infrastructure equipment, software, and services for enterprises, data centers, and service providers. The San Jose, Calif.-based company markets its products to business, governmental, healthcare, service provider, and educational customers, focusing on corporate enterprises and metropolitan service providers worldwide. It has a market capitalization of $1.43 billion.
On Jan.10, 2022, EXTR, in partnership with NetNordic, a Sweden-based company that specializes in networking and communication solutions, established one of the largest cloud-managed network infrastructures in Borås Stad, Sweden. This new Infrastructure aims to deliver faster and more advanced connectivity, extending secure public Wi-Fi while automating and simplifying network management for the IT team. EXTR should contribute significantly to the transition of Borås Stad to a Smart City.
For its fiscal year 2022 second quarter, ended Dec. 31, 2021, EXTR’s net revenues increased 16% year-over-year to $280.93 million. The company’s non-GAAP gross profit came in at $163.57 million, representing a 10.8% year-over-year improvement. Its non-GAAP operating income was $36.73 million for the quarter, indicating a 49.1% rise from the prior-year period. EXTR’s non-GAAP net income came in at $28.44 million, up 77.9% from the prior-year period. And its non-GAAP EPS increased 61.5% year-over-year to $0.21. The company had $173.55 million in cash as of Dec.31, 2021.
Analysts expect EXTR’s EPS to improve 43.9% year-over-year to $0.82 for its fiscal 2022, ending June 30, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The $1.13 billion consensus revenue estimate for the same fiscal year represents a 12.1% rise from the prior-year period. The company’s EPS is expected to grow at a 20% rate per annum over the next five years.
Over the past three years, the stock’s total assets and levered free cash flow have grown at CAGRs of 12.5% and 25.7%, respectively. It declined 8.1% in price over the past month to end yesterday’s trading session at $11.05.
EXTR’s 0.69x non-GAAP forward PEG is 52.7% lower than the 1.47x industry average. In terms of forward EV/Sales, EXTR is currently trading at 1.52x, which is 58.3% lower than the 3.65x industry average.
EXTR’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth, and a B grade for Value and Quality. Click here to see the additional ratings for EXTR’s Sentiment, Stability, and Momentum.
EXTR is ranked #1 of 56 stocks in the Technology - Communication/Networking industry.
AudioCodes Ltd. (AUDC)
With an $879.33 million market cap, AUDC, a Lod, Israel-based company provides advanced communications software and products and productivity solutions for the digital workplace. The company enables enterprises and service providers to build and operate all IP voice networks in unified communications, contact centers, and hosted business services, and serves OEMs, system integrators and distributors, and network equipment providers worldwide.
On Jan. 10, 2022, AUDC added Microsoft Corporation’s (MSFT) Operator Connect integration and a multi-tier customer portal to its AudioCodes Live Cloud offering. This integration enables operators to easily integrate with MSFT’s Operator Connect offering and simplify its customer onboarding to MSFT’s Microsoft Teams. It also leverages AUDC’s mature session border controllers (SBCs), certified for Microsoft Direct Routing, and supports Microsoft Operator Connect. The companies should witness higher demand from service providers in the coming months.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, AUDC’s total revenues increased 12.8% year-over-year to $248.92 million. The company’s gross profit came in at $170.89 million, representing a 14.1% year-over-year improvement. Its operating income was $39.52 million, representing a 3.6% rise from the prior-year period. While its non-GAAP net income increased 10.8% year-over-year to $51.79 million, its non-GAAP EPS grew 6.4% to $1.50. As of Dec. 31, 2021, the company had $79.42 million in cash and cash equivalents.
Analysts expect the company’s EPS to reach $1.54 for its fiscal year 2022, ending Dec. 31, 2022, representing a 2.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $281.08 million consensus revenue estimate for the same fiscal year indicates a 12.9% year-over-year improvement. The company’s EPS is expected to grow at a 14.1% rate per annum over the next five years.
AUDC’s total assets and levered free cash flow have grown at CAGRs of 24.9% and 49.7%, respectively, over the past three years. Over the past month, the stock has lost 4.7% and closed yesterday’s trading session at $27.22.
In terms of non-GAAP forward PEG, AUDC is currently trading at 1.18x, which is 19.5% lower than the 1.47x industry average. And in terms of forward EV/Sales, AUDC is currently trading at 2.69x, which is 26.2% lower than the 3.65x industry average.
AUDC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Stability. Click here to see the additional ratings for AUDC (Growth, Value, Momentum, and Sentiment). AUDC is ranked #3 in the Technology - Communication/Networking industry.
EXTR shares were trading at $11.23 per share on Thursday morning, up $0.18 (+1.63%). Year-to-date, EXTR has declined -28.47%, versus a -11.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
2 Best Beaten-Down Networking Stocks to Buy Now: Extreme Networks and AudioCodes StockNews.com
