"Polarizing" Sandvine is undervalued, says Cormark

Cormark analyst Richard Tse says the reaction to Sandvine’s (Sandvine Stock Quote, Chart, News: TSX:SVC) “solid” Q1 results was an unfair penalty to a stock that is “polarizing.

Yesterday, Sandvine reported its Q1, 2016 results. The company earned (U.S.) $5.61-million on revenue of $34.2-million, a 5.5 per cent improvement of last year’s Q1 topline.

“We are pleased with Sandvine’s financial results in the first quarter, which represent record Q1 revenue and our 14th consecutive quarter of profitability,” said CEO Dave Caputo. “We continue to see network upgrades to 100-gigabit Ethernet, which has resulted in significant orders for our Policy Traffic Switch 32000. We have also created new avenues for growth through the addition of our TCP Accelerator product and significant enhancements to our Network Security product.”

Tse he believes the pullback in Sandvine following the results was unwarranted, and says the key data points he was looking for indicate positive momentum for the Waterloo-based company.

“So why did the stock pull back then?” asks Tse. “In our view, it was triggered by what was read as a cautious tone on the outlook for Q2 combined with a potential lift in operating costs as the company on boards a recent acquisition. And given that glimpse of uncertainty, it (once again) had this polarizing stock being penalized. We believe that sentiment has created a valuation disconnect from the fundamentals. If you’ve been following our research, you’ll know our investment thesis has been calling for accelerating growth from: 1) a product upgrade cycle for the company’s PTS 32000; and 2) an expanding set of products for a growing customer base (300 vs 150 in the prior year). From our perspective, the data coming out of the Q1 results seemed to support that.”

In a research update to clients today, Tse maintained his “Buy” rating and one-year price target of $5.00 on Sandvine.

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