With shares of Akamai Technologies (NASDAQ:AKAM) trading at around $46.70, is AKAM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
Akamai is a leader in web acceleration and content delivery. As CEO Tom Leighton likes to say, "We help the web be faster, and we help it be more secure."
Tom Leighton has done a tremendous job with Akamai over the years. He has seen many ups and downs, but he has weathered the storms well. Currently, Akamai is seeing revenue growth. It also has no long-term debt. Its customers also include AT&T (NYSE:T), Apple Inc. (NASDAQ:AAPL), and News Corp. (NASDAQ:NWS). Companies of this size and stature will only choose the best of the best when it comes to necessary products and services. This is a testament to Akamai's quality. It should also be noted that Akamai's company culture is strong. According to Glassdoor.com, employees have rated their employer a 4 of 5. In addition to that, 87 percent of employees would recommend the company to a friend, and 100 percent of employees approve of CEO Tom Leighton.
In regards to the question in the title, as long as the Internet keeps growing, Akamai should keep growing. The biggest growth area for Akamai at the moment is in security. With hackers targeting large commercial websites, including major U.S. banks, Akamai's services are in high demand. While the growth might not be as fast, there is also growth in content delivery speed, especially due to the increased popularity of mobile. Then there's China. Akamai has a good relationship with the Chinese government. This is a good sign considering the amount of consumers in China.
Akamai recently impressed with earnings. Revenue increased 15.20 percent year-over-year, and earnings increased 41.7 percent year-over-year. North American revenue increased 12 percent year-over-year, and international revenue increased 26.0 percent year-over-year. While there might be headwinds for the company, including increased competition and increased investment in R&D, it would be difficult to make a solid argument to be bearish on Akamai.
Akamai was given an OUTPERFORM rating in the column on March, 6, 2013 at $37.50, but should Akamai still receive the highest rating possible after its recent run? We'll get to that soon.
The chart below compares fundamentals for Akamai, Level 3 Communications (NASDAQ:LVLT), and Limelight Networks (NASDAQ:LLNW).
| AKAM | LVLT | LLNW | |
| Trailing P/E | 36.77 | N/A | N/A |
| Forward P/E | 21.52 | 40.34 | N/A |
| Profit Margin | 16.33% | -5.69% | -17.07% |
| ROE | 10.13% | -29.95% | -10.20% |
| Operating Cash Flow | 540.94M | 660.00M | 16.96M |
| Dividend Yield | N/A | N/A | N/A |
| Short Position | 12.00% | 9.50% | 6.70% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Akamai has performed exceptionally well over the past year.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| AKAM | 31.88% | 14.15% | 49.82% | 18.47% |
| LVLT | 10.34% | 2.99% | -1.98% | 18.41% |
| LLNW | 3.59% | -9.01% | -21.09% | -52.69% |
At $46.70, Akamai is trading above its averages.
| 50-Day SMA | 38.10 |
| 200-Day SMA | 38.11 |
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for Akamai is stronger than the industry average of 0.30. Akamai has superb debt management.
| Debt-To-Equity | Cash | Long-Term Debt | |
| AKAM | 0.00 | 513.23M | 0.00 |
| LVLT | 7.75 | 610.00M | 8.59B |
| LLNW | 0.01 | 120.20M | 1.70M |
E = Earnings Are Steady
Akamai has shown increased revenue and earnings for several consecutive years. This is simply a well-managed company that knows how to maintain growth and deliver profits.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in billions | 0.791 | 0.860 | 1.02 | 1.16 | 1.37 |
| Diluted EPS ($) | 0.79 | 0.78 | 0.90 | 1.07 | 1.12 |
When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in billions | 0.319 | 0.331 | 0.345 | 0.378 | 0.368 |
| Diluted EPS ($) | 0.24 | 0.24 | 0.27 | 0.3757 | 0.39 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry
The following are a few reasons why trends support the industry: cloud, security, mobile, streaming video.
Conclusion
Akamai expects strong growth over the next four years. Thanks to its high quality services, it's an industry leader. There will likely be increased investments, which could impact the bottom line. Macroeconomic conditions and stock market manipulation also pose risks. However, potential rewards still outweigh risks for Akamai.
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