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Extreme Networks Inc. Message Board

  • edmann63 edmann63 Feb 6, 2014 11:33 AM Flag

    EXTR is on IBD

    one of high rated- low priced stocks, smart rating of 86

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    • I do not know what "smart rating of 86" means and what it is based on. I regard it as meaningless. EXTR is a very speculative stock as it stands now after the acquisition of Enterasys and the quarterly results and outlook. IMO, the earnings and outlook just announced are troubling. EXTR's acquisition of Enterasys was a risky one. It will pay off greatly if the combined companies succeed in growing both revenues and profits. (The separate companies were stagnant and operated at about breakeven.) However, if the new Extreme stagnates and the profit is minuscule (and even a loss when accounting for the share-based compensation as is the case in the coming quarter), the stock will drift to the low single digit. The old EXTR had a buffer of over $2/sh net cash but that net cash disappeared with the acquisition costs. (Enterasys tangible book value was only about $10M. The acquisition cost plus the integration costs are well over $200M.)

      • 1 Reply to c757172
      • The acquisition is relatively successful, although there will be some hiccups along the way. The sign that the acquisition is successful is that there is no revenue loss and customers are staying with them. If the acquisition continues to be successful, they can continue to acquire businesses and grow at a rapid pace. Their debt to equity is low, so they can continue to borrow to acquire businesses. And although their business has "minuscule profits" it cash flows fine to service the debt and potentially take on more debt for more acquisitions.

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