Tickers in this Article: ARUN, CSCO, MOT, GOOG, RIMM, MERU, JNPR
With the normal fall chill in the air in most parts of the country, Aruba seems like an increasingly pleasant destination. Tech investors seem to share that feeling, as Aruba Networks (Nasdaq:ARUN) has been an incredible performer over the past year. With this WLAN supplier having nearly tripled from its lows, it is fair to wonder how much gas is left in the tank.

No Real Slowdown ... Yet
Aruba posted strong results for the fiscal first quarter, but analysts had been calling for precisely that. Revenue rose 44% on a year-over-year comparison and 8% sequentially. That is a little less growth momentum than in the prior quarter (where the top line grew 45% annually and 12% sequentially) but not significantly less.

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Below the top line, performance was once again good but not all that much better than expected. Gross profit rose 49% and gross margin did expand to 72%. That is above the company's target range and a function of new products as well as a higher mix of software. At the bottom line, on a non-GAAP basis, earnings more than tripled from the year-ago level.

The Road Ahead
As Aruba is the No.2 player in WLAN (wireless networking for companies and large organizations), the spread of smartphones and tablets has to be a positive sign. When Research In Motion's (Nasdaq:RIMM) Blackberries started getting traction, there was a need for corporations to adjust their network and security needs to facilitate the technology. Now whether the device comes from Apple (Nasdaq:AAPL), Samsung, or Motorola (NYSE:MOT) and whether or not it runs Google's (Nasdaq:GOOG) operating system, there is the opportunity (and need) to access much more of the company network in an effective and secure way.

While Aruba is the No.2 player, it is a distant second; Cisco (Nasdaq:CSCO) has more than half of the market today, while Motorola (NYSE:MOT) is relatively close behind as the third player. Recently, a fair bit of attention seems to be going towards Juniper (Nasdaq:JNPR) and its acquisition of Trapeze. While Juniper certainly may be able to leverage that technology, Trapeze has generally been focused on smaller deals and has the reputation (if not the reality) of being more expensive to scale up. On the other hand, that is also the nature of tech investing and tech investors - there is never a good time to rest on laurels, and investors are always worried about any changes to the industry that could threaten the current leaders.

The Bottom Line
There is no point in trying to make a value call on a growth idea like Aruba. Aruba is growing very well relative to the WLAN businesses at Cisco and Motorola and in line with small rival Meru Networks (Nasdaq:MERU), so the growth momentum argument is there. On the other hand, at seven times trailing revenue and over five times the forward estimate, there is no argument to be made that this is a value stock.

Likewise, with such a brief history of cash flow generation, any sort of discounted cash flow model is going to be necessarily dependent upon historical comparisons to other networking companies and the modelers' inherent bias about future developments. But what the heck, right? If an investor wants to assume that Aruba will reach Cisco's current free cash flow margin in five years, grow revenue at a compound rate of 27% for the next five years and then grow free cash flow a further 20% a year for the next five years, then the stock is worth about $27, or about 20% more than today's price. (For more, see Stock-Picking Strategies: Growth Investing.)

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