Bear of the Day: Infoblox (BLOX)

Zacks

Infoblox (BLOX) is a Zacks Rank #5 (Strong Sell) while there 6 other companies that carry higher Zacks Ranks. This is a good reason to take a look at why it is a #5 and the Bear of the Day.

Big Data

Maybe you have seen some articles about big data and its growing importance to the economy. Seems marketers need all this data to get the best possible ad to you, making the rest of our lives similar to surfing the internet.

The thing that a lot of investors have done is look to the back bone of big data as a spot to invest. While that works in some spots, it doesn't guarantee success.

Company Description

Infoblox Inc. is in the business of automated network control solutions. Its appliance-based solution combines real-time IP address management with the automation of network control, and network change and configuration management processes in physical and virtual appliances. The company was founded in 1999 and is headquartered in Santa Clara, California.

2 Straight Beats

BLOX has missed the Zacks Consensus Estimate for 2 straight quarters. As I look back further, I see they have missed three of their last five quarters. There was one mega-miss that came in 100% below the Zacks Consensus Estimate, that will end up skewing the average, but the other two misses were large as well. A miss of 20% and 16% are nothing to shake a stick at.

It should be noted the two beats in the last five quarters were large beats. A 100% positive earnings surprise was followed up by a 14% upward move in the stock price and a 500% positive earnings surprise saw a 16% move in the stock.

BLOX Sees Estimates Moving Lower

BLOX has seen the The Zacks Consensus Estimate for 2014 move from a gain of $0.04 to a substantial loss in the last 6 months. That is not what investors want to see. The same could be said of 2015 estimates.

In October, BLOX had a 2014 Zacks Consensus Estimate of $0.04, but that was kicked down to a loss of $0.11 and is now standing at a loss of $0.36. That is a big move lower in just a few months.

The 2015 Zacks Consensus Estimate also moved from a gain to a loss. Over the same time period as mentioned above, the 2015 number fell from $0.20 to a loss of $0.14 and is now a loss of $0.39

Valuation

The negative earnings estimates as well as negative historical numbers mean that the old standby of PE as a valuation tool just won't work here. The price to book of 4.8X is just below a rather rich industry average of 5x and a price to book multiple of 4.2x is also below another rich level of 5x for the industry average. This proves the point that even hot industries, like the big data backbone industry, care about earnings.

The Chart

The price and consensus chart is a great tool developed by Zacks. It shows how the stock has acted as the Zacks Consensus Estimate moves over time. While there isn't that much of an earnings history here for BLOX, we do see that the 2015 estimate started out way too high and has really moved lower. Investors should wait for estimates to turn around before they consider a long term investment in shares of BLOX, especially when there are 6 other stocks in that same industry that are seeing HIGHER earnings estimates!

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

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