F5 Networks signals downtrend on lackluster Q1 view

The stock of content management solutions provider F5 Networks, Inc. (NASDAQ: FFIV) had a remarkable run up this year. Since February 11th , the stock has appreciated by about 69% to $146.56 (as of Tuesday’s close). The company reported a 5% y-o-y increase in the fiscal 2016 fourth-quarter revenue to $525 million.

F5 Networks reported fourth-quarter non-GAAP net income of $140 million or $2.11 per share, compared with non-GAAP net income of $130 million or $1.84 per share in the similar period of 2015. The quarterly revenue and earnings were higher than the Wall Street estimates (earnings of $1.94 per share on revenue of $520 million).

However, the following details indicate that the stock may undergo a correction in the week ahead. F5 Networks stated that it expects revenue of between $510 million and $520 million in the first quarter of fiscal 2017.

F5 Networks, Inc.

The company also anticipates GAAP earnings in the range of $1.40 to $1.43 per share in Q1 2017. Excluding amortization of intangible assets and stock based compensation expense, the non-GAAP earnings is expected to be between $1.92 and $1.95 per share. F5 Networks is slated to report its first-quarter results on January 25, 2017.

The Wall Street analysts expect the company to report first-quarter earnings of $1.53 per share. As it can be understood, the company’s guidance is lower than the market’s expectation. Even the analysts’ forecast is about 9.5% lower than the earnings reported in the previous quarter. For 2017, the analysts’ target price for the stock ranges from $121 to $140. In particular, investment research firm Wunderlich has given a price target of $130, while Oppenheimer has given a price target of $140. The analysts at Zacks have given a consensus target price of $138.76 for F5 Networks. This means that the stock is currently trading at a premium. So, fundamentally, we can anticipate a price correction.

The historic price chart shows that the stock of F5 Networks is facing resistance at 146 levels. The MACD indicator is moving downwards. This indicates a loss of momentum in the stock. Thus, a decline in the share price can be expected.

On the basis of the above analysis, a trader should consider investing in a low or below contract. The binary trader should invest in the low contract only if the stock trades above $145.50. An expiry time of one week should be selected for the trade.

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