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.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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