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Tickers in this Article: ARUN, CSCO, HPQ, MSI, MERU, JNPR
This is not a good time to be a tech stock with analyst numbers heading lower, and it's not altogether surprising that Aruba Networks's (Nasdaq:ARUN) stock is near its 52-week low. Although enterprise mobility is admittedly not the highest priority for most IT departments, and the company is seeing deceleration in Europe, this is still a small growing tech company with the number two share position in an emerging growth market.

SEE: Globalization: Progress Or Profiteering?

Macro Conditions Starting to Weigh on the Company
Based on fiscal third quarter results and management comments, it looks like Aruba is starting to see the impact of an overall weaker market environment. Third quarter results were in-line, but guidance was not great.

Revenue rose 25% from the year-ago level and 4% sequentially, as strength in markets like healthcare, education and "general" offset some weakness in federal spending. As mentioned, Europe was not a big help. Relative to Cisco (Nasdaq:CSCO), which showed about 20% growth in wireless, Aruba does still appear to be a share gainer in the market.

Margins were also fairly solid. Gross margin improved over two points from last year, but did slide a similar amount sequentially. Operating income improved both sequentially and annually, and the company's operating margin was slightly better than expected.

BYOD Still a Growth Opportunity
"Bring Your Own Device" (BYOD) is still a significant trend in the enterprise IT environment and a driver for this story. Simply put, a lot of people really like using their smartphones and tablets to facilitate work (in or out of the office), and enterprise IT departments are having to accommodate that reality.

SEE: How Tablets And E-Readers Can Save You Money

What that means is a $3B+ market opportunity that is still in many cases a greenfield growth market (that is, not having to displace existing equipment). Cisco is clearly the 800 pound gorilla today, as it holds roughly 50% share. There are also many wanna be competitors in the market, including Hewlett Packard (NYSE:HPQ), Motorola Solutions (NYSE:MSI), Meru (Nasdaq:MERU) and Juniper (NYSE:JNPR).

Aruba looks like the strongest would-be challenger to Cisco. Not only does the company have about 50% more share than the number three player (HP), but has been growing its share (though Motorola has been strong in some verticals like retailing). Cisco has been fighting hard to protect its installed base and there is some risk of commodization in certain areas of the market, but all in all Aruba's growth opportunity looks real.

The Bottom Line
It's difficult to argue for buying a tech company going into the summer, when guidance is soft and the macro IT environment is looking a little soft. Moreover, a quick look at trailing fundamental multiples doesn't immediately suggest that Aruba is desperately cheap.

Nevertheless, this is a name for GARP investors to check out. The company is still growing, the market is still growing, and Cisco's share could be vulnerable. If Aruba can grow its revenue to $1.5 billion by 2022 and deliver the free cash flow conversion typical for quality networking/wireless equipment companies, these shares look substantially undervalued. That's admittedly still an ambitious growth target, but cheap-looking tech stocks often have some catch to the story.

SEE: Free Cash Flow: Free, But Not Always Easy

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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