Downgrade drops shares of F5 Networks

Goldman Sachs cites concerns about long-term growth

Shares of network appliance vendor F5 Networks fell as much as 9 percent Friday after the company's shares were downgraded by Goldman Sachs.

By mid-afternoon, F5 (NASDAQ: FFIV) had bounced back from a low of 90.12 to 93.59, though that's still 5.5 percent below Thursday's close of 98.98.

Barron's Tech Trader Daily has details of Goldman's downgrading of F5:

Goldman Sachs analyst Simona Jankowski this morning cut her rating on F5 Networks (FFIV) to Sell from Neutral. Her target on the stock is $80. Jankowski notes that FFIV now has a P/E of 32x - 25x on an option-adjusted basis - “which we think represents a view of the stock as a key cloud vendor with a significant M&A premium.” But Jankowski adds that her analysis suggests that 85% of the company’s growth comes from server refresh and share gains, rather than cloud build-outs. Her conclusion: “this puts its growth trajectory in 2011, and thus multiple, at risk.”

So, clearly Jankowski thinks F5 is missing the cloud opportunity and may see revenue growth wane. But she's not saying the company is doomed; she's saying it's overvalued right now.

And it may be. F5 hit an all-time high share price of 112.05 on Tuesday. Through Thursday it was up 87 percent for the year and an astounding 433 percent from March 9, 2009, when it closed at 18.57.

F5 has an analyst/investor meeting scheduled in New York for Nov. 16, when we might learn if F5 has plans for "cloud build-outs." We'll get Q4 and annual figures before then, probably sometime late this month.

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