Valuation analysis for Aruba Networks, Inc. (NASDAQ:ARUN)
The fair value for Aruba Networks, Inc. (NASDAQ:ARUN) is derived by comparing earnings to the PE multiple overtime. Forward looking estimates play an integral role as do peg ratio valuation observations. This article defines the fair value for Aruba Networks to help investors may conscious investing decisions..
Our earnings analysis focuses on complete cycles to remove seasonal anomalies and in addition we exclude onetime events to focus on truer growth rates. Our observations are plotted over time and include forward looking estimates so that we can also define value looking ahead.
Our observations suggest that the growth rate for Aruba is expected to be 48.48% (first red dot) this year and 47.73% (second red dot) at the end of 2016 if analysts are correct about their estimates for earnings going forward. This is exceptional growth by all accounts, and marks a dramatic improvement from the earnings growth trough that existed in the third quarter of 2013.
With that exceptional forward looking growth rate in hand, our observations now turn to the PE multiple for Aruba. The current PE multiple for Aruba looks relatively high when compared to other stocks. The PE is currently 27.34 (blue bar), but if analysts are correct about calendar 2015 the multiple will decline to 21.87 (first red bar) by the end of calendar 2015 and decline even further to 18.51 (second red bar) by the end of calendar 2016 if price remains the same.
This allows us to look specifically at valuation. Using a peg ratio valuation approach that compares yearly earnings growth to the PE multiple we can see that the current peg ratio for Aruba Networks is 1.02. This is represented by the blue dot in our peg ratio chart. We consider fair value to be between 0 and 1.5, so given the growth rate that we're seeing now in Aruba the stock looks fairly valued, but we must look forward to define future value in 2015 and 2016 as well.
The first red dot in our peg ratio graph indicates that if analysts are correct about their estimates for Aruba the peg ratio will decline to 0.47 by the end of 2015 and 0.39 by the end of 2016 if price remains the same. Given the growth rate that Aruba is realizing and expected to realize both this year and next we consider a row the networks to be attractively valued.
Although the stock is arguably more aggressive, it is a stock that aggressive value oriented investors could consider because if analysts are right about their estimates shares of Aruba are likely to increase given its future valuation metrics
Trading Analysis: If you would like to know our buy and sell targets for AMGN please review our real time trading report for ARUN.