Great Growth Comes at a Cost
Stocks that grow sales at 131% don’t come cheap. But that shouldn’t scare investors away from buying them. Great high-growth tech stocks have made people a lot of money even though they come with a sizable price tag.
Riverbed Technology, a leader in the wide-area-network-optimization market, is just such a stock. It trades at 61 times next year’s earnings estimates. Sure, it sounds pricey, but the company is expected to grow earnings at 49% per year for the next five years. There are plenty of growth funds that would be willing to pay 100 times earnings for that kind of growth, Cramer said.
RVBD trades wildly. There’s no doubt about it. That’s why Cramer recommends investors wait until after tomorrow’s earnings report to buy a position. Those with the stomach for risk should only put on half before the call and half after, he said.
But aside of the short-term share-price fluctuation, Cramer is thinking further into the future. Riverbed’s Steelhead system for increasing business network speeds competes head-to-head with Juniper Networks, Citrix and Cisco Systems – and it’s winning. You don’t beat Cisco unless you’re really good, Cramer said.
Bottom Line: Riverbed is going much higher, Cramer said, but it might not go there first. Don’t let the quarters shake you out if it doesn’t look perfect. The growth there is about as good as it gets, he said.
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