Tickers in this Article: ARUN, JNPR, CSCO, HPQ, MSI, FFIV, RVBD
Even though the actual numbers do not support it, it feels like the markets have been down at least 1% every day for weeks. Whether this is just another example of enough people buying into "Sell in May and go away" that it becomes self-fulfilling or not, the reality is that the market is in a shoot-first mood.

When Aruba Networks (Nasdaq:ARUN) gave cautious guidance with its fiscal third-quarter report, it was tantamount to painting a bullseye on the derrière of shareholders and the market punished the stock in due course. With the dust starting to settle a bit, though, it is time to ask whether the long-term growth potential of this name merits the attention of risk-tolerant growth investors.

TUTORIAL: Stock Basics

On its Own, Not a Bad Fiscal Third Quarter
In a vacuum with respect to guidance and expectations, Aruba's third quarter was pretty strong in many respects. Revenue rose 53% and surpassed estimates by more than the usual degree. Growth was again led by product revenue (up 58%), though 3% sequential growth in the U.S. is a bit of a concern - particularly in light of that softer guidance.

Oddly enough, Aruba is seeing good strength in the public sector. Then again, enough information has come in from rivals like Juniper (Nasdaq:JNPR), Cisco (Nasdaq:CSCO) and Hewlett-Packard (NYSE:HPQ) that it looks like any "weakness" in public sector spending is really more about Cisco's own execution and product issues.

Profitability was a bit more mixed, though. Gross margin (on a GAAP basis) slipped a bit from last year and fell almost three full points on a sequential basis - largely due to a bigger contribution to sales from Asia-Pacific. Operating performance was also lackluster, as the company did not deliver as much leverage as analysts expected. The company reported a GAAP operating loss as sales and marketing expenses increased 48% (less than sales), and stock compensation expense jumped 77% (roughly 18% of sales).

A Strong Story Still In Play
Even if revenue growth for the next quarter or two is less than previously hoped, there is a lot to like about the Aruba story. The company is really gaining traction with its products - customers like them not only because it makes adding Wi-Fi functionality to a network a lot easier, but because the security architecture is so good. That's powered the company in the #2 slot in its market, behind Cisco (but gaining fairly quickly), and ahead of Motorola Solutions (NYSE: MSI), Hewlett-Packard and Juniper.

Looking just at the next few years, there could be a lot of potential for market share growth at Aruba. If that security architecture is really so good, perhaps that is a platform for growth in its own right. Even if the company stays focused on WLAN, though, the spread of tablets and wireless devices from Apple (Nasdaq:AAPL), Research In Motion (Nasdaq:RIMM) and the like should provide more than enough impetus for customers to add wireless capabilities to their existing networks.

Flying Too High for a Parachute
If everything works out for Aruba, and the company can grow its cash flow at a double-digit clip for a decade, the stock may be ever so slightly cheap. Of course that is an extremely aggressive growth trajectory, but this is a relative value call. Relative to a collection of other leading-edge tech companies with robust valuations and expectations - Acme Packet (Nasdaq:APKT), Riverbed (Nasdaq:RVBD), F5 (Nasdaq:FFIV) and VMware (NYSE:VMW) - Aruba's valuation is not all that out of whack.

Relative valuation smacks of that lecture many people got as a kid - if your friend jumped off a bridge, would you? Still, it can help investors figure out which horse to ride when the entire field seems frothy and overheated. There are so many cheaper and safer ideas out there, but if an investor feels the need to invest in high-growth tech, maybe Aruba is not such a bad idea for now. (For related reading, see Cisco: No Growth Today, Try Again Tomorrow.)

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