Is Brocade a Comeback Story?
With shares of Brocade (NASDAQ:BRCD) trading at around $5.86, is BRCD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
In this section, you will usually find catalysts for the stock’s movement (hence the category). That will also be the case here, but instead of getting right to the facts, let’s have a little fun first. After all, it’s a rainy Tuesday in many parts of the country, and that doesn’t often lead to a bright and cheery mood. That’s why a Brocade video has been included. But it’s not just a Brocade video. It’s a Brocade rap video. If you happened to watch the music video for EMC Corporation (NYSE:EMC), which was posted last week, then you were likely entertained while also learning something about the company. This situation is similar. The basic purpose of watching the video is to see what Brocade dose. But entertainment is a close second. Brocade itself states that the video is about a company that isn’t afraid of losing its image. The video is two years old, which made including it here a debatable decision, but it’s still pretty accurate.
If you’re a veteran investor, then you probably have no interest in watching a rap video, but there are two quick points to make here. One, veteran investors don’t invest in Brocade because they don’t understand the business. Two, if you’re a veteran investor with no interest in watching a rap video, we know you’re going to click on the “Play” button anyway. Don’t worry; no one will find out. If you happen to be alone, then you might even get out of your seat and dance along with rap hand movements. That’s cool.
More importantly, though, the video gets down to business. If you’d rather skip it, just read below for all the highlights.
Hope you enjoyed. And in case you didn’t pick up on it, the 800-pound gorilla represented Cisco Systems (NASDAQ:CSCO), as it should. This is a good time to point out that Brocade is nowhere near the size of Cisco, but since Cisco is predicting trouble ahead, this could mean trouble for Brocade. The good news is that this weakness is only expected to be temporary and a direct result of the broader economic environment. This is NOT a dying industry. It should also be noted that Brocade recently showed record revenue in Q1. This was due to strength in storage and IT. EPS swung to a loss year-over-year, but that was mostly due to a non-cash tax charge. Margins were up slightly for the quarter, which was due to higher revenue and a more favorable Ethernet product mix. You can find more information in the Earnings section.
Let’s take a look at some important numbers prior to forming an opinion on the stock.