(By Rich Bieglmeier) An old-adage of Wall Street is that accumulation precedes appreciation. If that's the case, then investors better pay attention to Aruba Networks, Inc.
) today. Shares are on the run today, up more than a dollar on 150% higher volume than usual.
ARUN shares are higher and volume swelling despite a lack of news. In fact, the only press mention we can find is of the negative sort. Barron's reports that Piper Jaffray‘s networking analyst, Troy Jensen, says "his survey of resellers at the end of June showed Cisco "above plan," which was better than some competitors such as Juniper Networks (JNPR
) and Aruba Networks (ARUN)."
The network access solutions for mobile enterprises company's next scheduled news event is 4th quarter and full year earnings shortly after market close on Thursday, August 23, 2012. Aruba will host a conference call and live webcast right afterwards. That's two weeks from today.
Perhaps, some of today's advance can be attributed to short covering in advance of earnings as 24.20% of Aruba's float is sold short. Looking at ARUN's stock chart, the stock recently broke through a multiple top at $15. As the stock and moving averages race across the 50-day moving average, volume is accelerating, as well.
This is an indication that holder might be reluctant to unload shares, so buyers need to up their bids to entice seller.
The recent move has the price in the middle of totally recovering a multi week waterfall. In late April, the mid-cap tech company fell from $21.50ish to $12.50ish by June 1, 2012. Our technical analysis shows mild resistance at $18 and then leg two to $21 can start.
iStock believes Aruba Networks (ARUN) is fairly valued at its current level using some of our favorite valuation metrics.
Wall Street analysts' believe earnings in the year ahead will grow by 20.60%. Meanwhile, the company's forward P/E is 22.18.
Compared to most companies in the peer group, Aruba is at the high-end of valuations, trading at 3.54 times sales and a trailing P/E of 30; however, ARUN does deserve a premium, in our view, as its year-over-year, quarterly revenue growth of 25% smokes the average networking company.
We see Aruba as more of short-term trade than long-term hold
, unless their commitment to research & development begins to payoff in higher margin, market leading technologies. Hopefully, we'll see the buds of that fruit during the upcoming earnings announcement.