Even during a down period for the markets, F5 has gone against the grain, climbing to $266. Its shares have yielded a 21.7% return over the last six months, beating the S&P 500 by 23.4%. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in F5, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
We’re happy investors have made money, but we're cautious about F5. Here are three reasons why you should be careful with FFIV and a stock we'd rather own.
Why Is F5 Not Exciting?
Initially started as a hardware appliances company in the late 1990s, F5 (NASDAQ: FFIV) makes software that helps large enterprises ensure their web applications are always available by distributing network traffic and protecting them from cyberattacks.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, F5 grew its sales at a weak 2.7% compounded annual growth rate. This was below our standards. 
2. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
F5’s billings came in at $914.8 million in Q4, and over the last four quarters, its year-on-year growth averaged 4.5%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect F5’s revenue to rise by 4.5%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
Final Judgment
F5 isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 5.2× forward price-to-sales (or $266 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
Stocks We Like More Than F5
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