Extreme Networks is the IBD Stock of the Day as the maker of computer networking gear turns actionable amid an improving relative strength line and increased trading volume. EXTR stock is making gains as revenue growth reaccelerates.
On the stock market today, EXTR stock rose 4.6% to close at 20.60. Extreme Networks holds a traditional entry point of 21.13 from a consolidation base.
But EXTR stock is already actionable, having cleared some short-term highs amid a downward-sloping trendline. Volume has been strong.
In early May, the company hosted its annual customer event in Berlin. At the time, Rosenblatt Securities analyst Mike Genovese noted that the company was getting a leg up on much bigger rivals Cisco Systems and Hewlett Packard Enterprise's) Aruba division.
"The company's customers are energized, and have been leaving competitors such as Cisco and HP Aruba," Genovese said in a report to clients. "Extreme has a marketing initiative to emphasize all the large well-known customers that rely on it for networking. We think this is a good idea to take the brand to the next level."
Extreme's Big Order Backlog
The company has weathered supply-chain constraints and is now working through an order backlog that will support revenue growth even if the U.S. economy weakens, analysts say.
"The actions we have taken with our supply chain over the past year give us greater visibility and confidence that the consistently quarter ramp-up of our product deliveries and revenue will continue," Chief Executive Edward Meyercord said on the company's March-quarter earnings call with analysts. "We expect our backlog will normalize to a range of $75 million to $100 million in our Q1 fiscal 2025."
The March period marked Extreme's fiscal third quarter of 2023. Revenue rose 16% to $332.5 million, topping analyst estimates by 4%. Earnings jumped 38% to 29 cents per share, beating views by 12%.
"We think EXTR is much more than a backlog conversion story as growth is driven by share gains," EXTR stock analyst Alex Henderson of Needham said in a report. "There's also a robust gross margin and operating margin expansion story. GMs are expected to increase 400 to 500 basis points (4% to 5%) over the next several years and drive operating margin to the 20%-plus vicinity."
Extreme Networks recently named Kevin Rhodes as its new chief financial officer. Also, it repurchased $25 million of its own shares in the March quarter.
EXTR Stock: Technical Ratings
Meanwhile, the computer networking stock holds a perfect IBD Composite Rating of 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
EXTR stock has an Accumulation/Distribution Rating of A-. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Mediocre Ranking For Group
The IBD computer networking group ranks a so-so No. 88 out of 197 industry groups tracked. The group includes Cisco and Juniper Networks.
Cisco is building a cup base with a 52.66 buy point. If it forms a handle, an earlier entry would be actionable.
Extreme Networks bought wireless networking gear maker Aerohive in 2019 and Ipanema in 2021. With the Ipanema purchase, Extreme entered the SD-WAN market.
SD-WAN technology centrally manages and speeds up cloud-computing applications. With software-defined networks, companies have less need for costly private data networks leased from telecom companies.
EXTR Stock: Kroger New Customer
In the Ethernet switch market, most of Extreme's sales are for corporate campus gear, not data centers. Arista Networks, Cisco and Juniper Networks have more share in data-center gear.
Extreme focuses on cloud-managed networking solutions, automation, analytics and artificial intelligence to optimize performance and security.
"Some top wins for the (March) quarter included Kroger, one of the largest U.S. grocers, with 2,800 stores across the country," said Meyercord.
He added: "This deployment will become the world's largest cloud-managed network with more than 110,000 access points managed via ExtremeCloud. With Wi-Fi 6E, Kroger will benefit from faster speeds, lower latency and more security across its entire network."
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
