F5 Networks, Inc. (Nasdaq: FFIV) – F5 is a software company based in Seattle, Washington. The company’s focus is on infrastructure software and its products help optimize the security, performance, and availability of network applications, servers, and storage systems.

F5’s products are sold globally via a network of distributors, resellers, and systems integrators. The company was founded in 1996.

F5 has seen its earnings grow at solid pace in recent years.

The annual growth rate has averaged 14% over the last three years and analysts expect earnings to grow by 8% this year.

Earnings grew by 19% in the most recent quarterly report.

Sales have grown at a rate of 4% annually over the last three years and they grew by 5% in the most recent quarter.

Analysts expect sales to grow by 3.8% for fiscal 2019.

Where F5 really stands out is in its management efficiency and profitability.

The return on equity is at 48.7% and the return on assets is at 14.99%.

The profit margin is 36.7% and the operating margin is at 28.2%. The company doesn’t have any long-term debt and that obviously helps these measurements.

The sentiment toward F5 is rather bearish at this time. There are 22 analysts following the stock and only four rank the stock as a “buy”. There are 16 “hold” ratings and two “sell” ratings. In addition to the analysts’ ratings, the short interest ratio is currently at 7.55. Remember, bearish sentiment is a positive because it can help drive the stock higher if bears turn in to bulls.

The weekly chart for F5 shows that the stock has fallen in the last few months, just like most stocks. However, F5 has three layers of potential support that are coming in to play at this time. First, we see how the $150 area served as resistance back in early 2017 and now the stock has dipped back down to that level. Many times we see former resistance points become support levels on a pullback.

The second layer of support comes from the lower rail of the trend channel that has formed over the last few years. The third layer comes from the 104-week moving average which is at $147.80 currently. The stock used the moving average as support back in 2016 and hovered just below it in 2017 before the stock rallied sharply.

Suggested strategy: Buy FFIV with a maximum entry price of $155. I would set a target of at least $210 over the next 12 months (for a potential return of 40% from current prices). I would also suggest a stop at $140.

— Rick Pendergraft

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