Akamai Technologies falls out of favour
Akamai Technologies Inc. (AKAM)
While Flight of the Choncords may be my current favourite purveyors of mirth, I do get a good laugh when I read “analysis” like this by Steve Biggs from Zacks.
Akamai is currently trading at its 52-week low price. The company’s P/E ratio of 15.2x is based on our 2008 EPS estimate of $1.29 and 4.2x our 2008 revenue estimate of $4.69 per share. Although the valuation has fallen to the low-end of historic levels, we would not be the buyers of the stock given the risk of a decelerating growth rate. Revenue grew at 51.4% in 2006, slowing to 48.5% in 2007.
Akamai’s 2008 guidance indicates revenue growth of 24.5%, well below historical levels. We therefore lower our six-month price target to $20.00. This represents a P/E multiple of 13.2x and a P/S multiple of 3.5x our 2009 estimates.
With Akamai trading around $19-20 earlier this week when that analysis is published my impression is the author suffered from a nasty bout of anchoring and rather than working out a value for Akamai he simply worked out what multiples the current price and estimates indicated.
At current prices Akamai is certainly worth a closer look. I own Akamai and will be taking that closer look.
I won’t even mention the ludicrous notion of a six month price target, oh I just did.
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