The still-competitive technology sector produced one of the few bright spots in a nasty, brutish and short week on equity markets in the United States, when Brocade Communications Systems Inc. (NASDAQ:BRCD) came out with fairly mouth-watering earnings numbers, thus projecting it into the forefront of stocks to watch.
Why, no less a group of wise men than the Motley Fools gave the stock its endorsement, pointing to its $352.4 million in free cash flow, gathered over the past year while it booked net income of $50.6 million for the fiscal year ending October 29. That means it turned 16.4% of its revenue into FCF.
Based out of San Jose, Brocade boasts "networking solutions help the world's leading organizations transition smoothly to a world where applications and information reside anywhere."
This week, the company also reported fourth-quarter revenue of $550 million, representing an increase of over 9% quarter-over-quarter and up slightly year-over-year. On a quarterly basis, Brocade reported a diluted loss per share of one penny on a GAAP basis and diluted earnings per share of 16 cents on a non-GAAP basis.
Much of the strength of this company’s bottom line was found in boosts to its Ethernet business, which trumpeted record revenues of $189.2 million in the fourth quarter, an increase of 11% year-over-year. This growth was driven primarily by Service Provider and Enterprise customers, with revenues from those customers up 18% from the prior year.
Brocade CEO Michael Klayko credited this strength to not only the Ethernet business, but also the 16 Gbps Fiber Channel products, and concluded "these strong performances demonstrate that we are executing well on our long-term strategy. Looking at FY 12, we plan to leverage this momentum along with our highly differentiated innovation strategy, expanding product portfolio, and our strong routes to market."
The stock may still be in a bargain, compared to a 52-week peak of $7.30 achieved in the halcyon days of early June; following the earnings news, the stock gained 2.6% Friday to $5.09, with a price-to-earnings ratio around 50.70. One would be well-advised to put this stock up on one’s radar screen, but to proceed with due diligence.
