F5 stock (NASDAQ: FFIV) is trending higher on Wednesday, January 29, after the company posted upbeat Q1 fiscal 2025 results (fiscal ends in September) and an upward revision in its guidance for 2025. It posted revenue of $766 million and adjusted earnings of $3.84 per share, well above the consensus estimate of $715 million and $3.38, respectively. The results boded well with the investors and the stock surged 15% in after market hours post the results announcement.
FFIV stock, with 51% returns since the beginning of 2024, has outperformed the S&P 500 index, up 27%. The shift toward cloud computing has driven up demand for F5’s cloud and cybersecurity offerings. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
F5’s revenue of $766 million in Q1 reflected a 10.5% y-o-y growth, led by a 22% jump in software sales. Looking at other segments, global services sales were up 3%, while systems revenue grew by 18%. F5’s adjusted operating margin expanded by 190 bps y-o-y to 37.4% in Q1. Higher revenues and margin expansion resulted in a bottom line of $3.84 on an adjusted basis, reflecting a 12% y-o-y growth.
Looking forward, F5 expects its fiscal 2025 sales to rise between 6% and 7% and its adjusted earnings to rise between 6.5% and 8.5%. This compares with its prior outlook of 4% to 5% sales growth and 5% to 7% earnings growth.
What Does It Mean For FFIV Stock?
An upbeat quarter, with better than anticipated revenue growth and margin expansion bolstering F5’s bottom line, boded well for its stock. More importantly, the company stated that it has positioned itself advantageously in pioneering solutions for hybrid multicloud environments and offering distinctive capabilities for fast and secure enterprise data movement. This puts F5 in a strong position to support businesses as they scale up their AI implementations.
Notably, the increase in FFIV stock over the last four-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 39% in 2021, -41% in 2022, 25% in 2023, and 41% in 2024.
The Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and the rise of AI, could FFIV see a strong jump? We estimate F5’s valuation to be about $290 per share, slightly below its current market price of $300. At its current levels, FFIV stock is trading at 21x its expected earnings of $14.50 in fiscal 2025. The 21x figure is higher than the stock’s average P/E ratio of 17x for the last four years. However, a slight rise in valuation multiple seems justified, given the potential incremental revenues from the rise of AI.
While FFIV stock is trending higher, it is helpful to see how F5’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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