It's Not Too Late to Win Big on Networking Stocks
Wednesday was a roller-coaster ride for us Sonus Networks (NAS: SONS) shareholders. Vacillating between 3% gains and nearly 6% drops, the stock chart spanned 9.6% from top to bottom.
In the end, Sonus finished the day strong despite missing Wall Street's expectations. The networking-gear maker lost $0.02 per share on revenue of $52 million, comparing poorly with the $0.01 profit per share and $66 million sales estimates.
Before you call that an unmitigated disaster, you need to consider that we're talking about a small company with very lumpy sales. If Cisco Systems (NAS: CSCO) , Juniper Networks (NAS: JNPR) , or Alcatel-Lucent (NYS: ALU) see a couple of large customers pushing orders back to the next quarter, it's no big deal -- noise in the system that typically works out as a rounding error.
Those giants are orders of magnitude larger than niche specialists like Sonus or voice-carrier archrival Acme Packet (NAS: APKT) . When the little guys move revenue around a bit, the changes to each quarter can be huge.
And that's what's happening here. Despite the sizable revenue miss, Sonus kept its full-year sales target steady at about $275 million, which is exactly what Wall Street was expecting. "Our confidence in the strong second half is based on our forecasted new bookings, the general historical strength of our business in the fourth quarter, and, importantly, our backlog, where we have already scheduled two-thirds of our second-half forecasted revenue," said CEO Ray Dolan. It's a cyclical business dominated by large and hard-to-time orders, so this is the natural order of business.
The relatively sanguine reaction to this tells me that Sonus investors have been conditioned to expect wild swings like this. But that's not always the case. The stock has swung through changes of 66% from top to bottom over the last year, spiked by terrific results in February and sunk back down by a downer report in May. Cyclical sales beget cyclical stocks, and you should be buying Sonus while it's down. Right now would be an opportune time, before those missed orders start showing up in the second half and jolting the stock back to life again.
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At the time this article was published Fool contributor Anders Bylund owns shares of Sonus Networks, but he holds no other position in any company mentioned. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Acme Packet and Cisco Systems and shorting Juniper Networks. Try any of our Foolish newsletter services free for 30 days. WeFools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.
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