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Thursday, October 28, 2010

Riverbed Technology -- great company but too extended?

Glancing through the Over-Valued Over-Bought Report at the Alert HQ Premium site I noticed that Riverbed Technology (RVBD) was on the list.

The following chart gives you an idea about the over-bought aspect:

In terms of over-valued, consider some of the measures by which we generally evaluate stocks at Trade-Radar:
  • PE is 242, roughly 8 to 10 times higher than most growth stocks
  • Price to Sales is 7.33 close to triple what we see in many tech stocks with good growth characteristics
  • PEG is 1.75, high even for a growth stock
  • Enterprise Value to EBITDA is over 67 which is 10 times what you might see in a value stock and at least 6 times what you might see in other good growth stocks
Granted, the company is executing extremely well. Riverbed just reported Q3 earnings of $0.34 versus $0.27 estimates. Revenue increased 17% sequentially to $148M vs $135M estimates. Nevertheless, it's hard to see how that justifies the valuation measures described above.

After today's drop of 3.35% perhaps investors are coming to the same conclusion.

Disclosure: no positions at time of writing

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