Wall Street has soured once more on Ruckus Wireless (NYSE:RKUS).
The Wi-Fi operator came public back in mid-November to a dubious reception — an 18% first-day plunge. The company had rebounded by nearly doubling since then, but Wednesday’s earnings brought out the bears once more, sending shares down 12% (and another percent or more today).
Ruckus did beat expectations for the fourth quarter. Revenues grew 51% year-over-year to $62.2 million and earnings were unchanged at 7 cents a share. Meanwhile, the Street was looking for revenues of $60.5 million and earnings of 5 cents a share.
The problem was the guidance for the current quarter. Ruckus projects revenues of $62 million to $64 million with earnings of 3 to 4 cents a share, with the consensus for a respective $62.6 million and 3 cents hitting the lower end of those ranges.
An analyst at Needham & Company subsequently downgraded Ruckus from a “buy” to a “hold” with a price target of $21 — about 7% lower than its midday Thursday price. He still thinks RKUS will continue to perform well; his bearish view is mostly based on valuation concerns.
Still, the losses of the past two days might be an overreaction.
Ruckus has become a top player in the Wi-Fi market, which is becoming critically important as people continue to buy up Apple (NASDAQ:AAPL) iPhones, the Samsung Galaxy and other smartphones. In fact, a report from Infonetics predicts that the Wi-Fi market will grow from $300 million in 2011 to $2.8 billion in 2016 — a sizzling annual growth rate of 57%!
Ruckus essentially builds technologies that helps to deal with the huge bandwidth needs of service providers. It also solves problems with interference — because of the proliferation of Wi-Fi systems — and allows seamless integration with back-end systems, especially with mobile 3G and 4G networks
The valuation certainly looks much better after the recent drop, with its price-to-earnings ratio coming to about 24. When compared to Ruckus’ strong growth rate — which should continue for years — it sounds pretty reasonable. So, investors who want to capitalize on the mobile revolution shouldn’t be scared to get into RKUS.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.