Software developer Citrix (NASDAQ:CTXS) recently enjoyed a decent earnings report that saw both revenues and earnings top Wall Street expectations.
First-quarter revenues jumped 20% to $589 million and be estimates for $562 million. Earnings fell fell 7% to $68.3 million, but adjusted earnings came of $111 million (59 cents per share) beat expectations for 51 cents per share.
The news sent CTXS shares up roughly 11% during the two trading days in between, bringing Citrix’s gains to nearly 40% year-to-date. Still, Citrix’s performance has been an erratic one during the past year, with the stock still shy of highs reached last May.
So should you buy Citrix stock? To decide, let’s take a look at the pros and cons:
Technology Innovator: Citrix’s main focus is on helping enterprise customers lower costs and improve collaboration. Some of its products include GoToMeeting and GoToWebinar.
However, the big driver for the business is desktop virtualization. This essentially improves the performance of applications using Internet technologies. It still looks like a market in the early stages — at least compared to server virtualization, which is dominated by VMware (NYSE:VMW).
Mega-trends: Citrix’s products are focused on some of the biggest growth forces in information technology. They include mobile, enterprise cloud applications and cloud services. These are markets that are likely to grow at strong rates for a decade or more.
Acquisitions: Dealmaking has been a key for Citrix, and the company has a long history of success. CTXS has a good sense of picking-up early stage companies that add key features to the company’s platform.
Valuation: The stock is pretty pricey, trading at about 60 times earnings. And CTXS doesn’t offer a dividend, either.
Disruption: Citrix had the foresight to move into fast-growing industries like collaboration and conferencing. However, these markets might be subject to disruption. With the surge in venture capital over the years, there are a growing number of startups that want to get a piece of the action.
Going forward, the momentum for Citrix is likely to continue. The company boosted its Q2 guidance and now projects revenues of $605 million to $615 million, and non-GAAP earnings per share of 58 cents to 59 cents.
Again, Citrix has a top set of technologies that are part of some mega-markets like virtualization and the cloud, and growth is likely to continue for some time.
However, the recent spike in price has made CTXS a little rich for most tastes. So should you buy Citrix stock? For now, it’s probably better to wait for a dip.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.