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Acme Packet Due For a Big Beat

By's somewhat of a mystery why the stock has traded as poorly as it has, even considering the lock-up expiry.

A somewhat recent IPO in Techland is Acme Packet (APKT). The stock got off to a pretty good start, pricing well and also trading well for its first two-three months. However, shares have suffered notably since that initial strength.

APKT came public within a few weeks of Riverbed Technology (RVBD) and I think therein lies a good part of the problem. APKT looks to be suffering from the "you're not RVBD" complex. Things are going well but compared to the star IPO and performer with a stronger revenue trajectory, APKT gets left behind. For every quarter it does 35-40% growth RVBD does a number much higher (200% last quarter for RVBD).

However, that doesn't mean it gets left behind forever. I think the biggest thing is that the IPO lock-up that hits every new IPO after six months has hit APKT, and it hasn't had any really good significant news to get anyone to soak up that extra selling from the insiders. (Though APKT did have another solid quarter, more on that later.) You can't blame insiders at these tech start-ups for selling. Most own pre-IPO priced shares at very low prices. And after all, one of the most expensive places to live on the planet is Silicon Valley.

What does APKT do? SBCs, or session border controllers.

Here's a good primer and a Google search for "session border controller" yields plenty of good reading material.

My quick take on this technology is that it could continue to grow at a healthy clip. The revenue ramp for this market seems to be analogous to the ramp of load balancing from a few years back. F5 Networks (FFIV) has dominated that area and the stock has been rewarded.

Frankly, it's somewhat of a mystery why the stock has traded as poorly as it has, even considering the lock-up expiry. It has produced solid results and has not missed numbers or guided lower. However, it hasn't produced that big beat-and-raise type quarter.

The current quarter again was solid, with a beat on current revenues and EPS, but again it did not guide higher. Investors didn't react negatively this time, as they had the past couple quarters. The shares surged to regain losses of the prior couple weeks heading into the quarter – and this was into a very weak tape for small cap technology late in the week. Maybe investors are getting used to conservative guidance from this relatively young public company.

APKT is one of a just a couple of SBC providers to remain independent. After the past couple weeks, many pundits view the M&A window effectively closed. Contrarily, I do not believe that is the case in the broad market. With regard to technology M&A, activity has been very light thus far and I think the next big phase of M&A activity will be in various sub-sectors of technology. Odds of a buyout might be higher if APKT had a higher total level of cash per share. However, the balance sheet is about as clean as they come and it is sporting a cash balance above $2 per share. Not bad for a stock selling at $12.55 on Friday's close.

Lastly, looking at a point and figure chart on APKT shows what looks to be a selling climax in the days/weeks leading up to its recent quarter. From my perspective a break back above the $14.50 level may turn the P&F to a bullish from current bearish stance. I know Prof. Kevin Depew is the P&F expert on the site and his perspective may be different or may confirm my read here. I look at a host of technicals and many seem to show a positive divergence.
Position in APKT.

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