Five Reasons Ciena Has More Risk than Reward
Long-haul, it looks good. Near-term is a different story.
In a nutshell, here's what I like and don't like about this company:
On the upside:
1. The shares have had a sweet run since springtime (much like tech and the market). If it can get a decent gust of wind at its back, one could argue that a new high is doable.
2. It's expected to be in the black next year, which would be a good thing.
3. It's clearly got a big name. To boot, as fellow Minyan Sean Udall points out in The Top Five Reasons Ciena Won't Sell Out, "Ciena is one of the clear leaders (if not the premier company) in their space."
4. In the long run, I think the stock has a solid amount of upside potential from its current price.
On the downside, however:
1. I do think the stock has come a little far a little fast. Even if the company does meet the $0.09 estimate for 2010, that wouldn't be all that impressive, and it doesn't really justify the more than $13 share price.
2. The data show its missed estimates in the last three quarters, which doesn't leave me overly optimistic that the quarter to be announced will be too much different. Note that the current third-quarter estimate is a $0.13 loss.
3. I sense there's a great deal of expectation factored into the stock. But what happens if the economy doesn't bounce back the way people are expecting, and Verizon (VZ) and/or Sprint Nextel (S), or any other of its customers don't drop quite as much coin as expected? This is its potential Achilles heel, and the reason I'm afraid to get involved.
4. I would like to see insiders belly up in the open market at these levels.
5. Aren't there better opportunities out there right now? All things considered, I'd much rather play on the Verizon swing set. After all, it's expected to kick out results well in the black this year and next.
I like Ciena's chances long haul. But near-term, I just don't have the guts to hop aboard the train. In the low double-digits, however, I might change my mind.
Alternatively, management offering a better-than-expected outlook when it releases might change my tune, as well. But to be honest, I'm not really expecting that. Stay tuned.
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