Barracuda: Zacks’ Bear of the Day Play

Earnings estimates have fallen for Barracuda Networks (CUDASnapshot Report) following its fiscal 2015 third quarter results on January 8. The declines in consensus estimates for both this year and next have been significant enough to send the stock to a Zacks Rank #5 (Strong Sell).

While shares of Barracuda have pulled back since the report, it doesn’t exactly look like a value here at more than 300x forward earnings.

Barracuda Networks, Inc. provides storage and security solutions. Its products address security threats, enhance network performance, and protect and store data. The company is headquartered in Campbell, California and was founded in 2003. It has a market cap of $1.8 billion.

Third Quarter Results

Barracuda Networks reported its fiscal 2015 Q3 results on January 8. Adjusted earnings per share (but including stock-based compensation expense) came in at a loss of 3 cents, missing the Zacks Consensus Estimate of 2 cents. Excluding stock option expense, the company beat earnings expectations.

Revenue was in-line with consensus at $70.4 million and up 19% year-over-year. Total active subscribers grew 19% to over 234,900. Subscription revenue, which accounted for 71% of total revenue in the quarter, increased 21%.

Barracuda spent nearly 22% of revenue on research and development. Meanwhile, operating cash flow increased 15% year-over-year to $12.2 million.

Estimates Falling

Following the Q3 report, analysts lowered their earnings estimates for both fiscal 2015 and 2016 (again, this includes stock-based compensation expense). This sent the stock to a Zacks Rank #5 (Strong Sell).

The 2015 Zacks Consensus Estimate is now $0.06, down from $0.12 before the Q3 report. The 2016 consensus declined from $0.22 to $0.12 over the same period.

Lofty Valuation

Shares of Barracuda are down about 13% since the Q3 report, but it doesn’t look like a value here. The stock trades at a rich 308x 12-month forward earnings. And its enterprise value to cash flow ratio is a lofty 135x.

The Bottom Line

With negative earnings momentum and lofty valuation, investors should consider looking elsewhere for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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