Akamai (AKAM), the internet content acceleration company, has been showing downward momentum since a peak at . It plunged after its Q2 earnings announcement on Wednesay. So why did I add to my Akamai position today?
Akamai has always been a good company. Its stock price, however, has been subjected to fits of mania and depression practically since its IPO in 1999, during the peak of the Bubble. When the recession hit in 2008 all the air went out and I was able to buy Akamai at bargain basement rates [$17.56/share]. Then the excitement returned, pushing Akamai up to valuations that just did not make sense considering where most other technology stock prices were. It was at $54 per share in December of 2010. I had sold part of my stake [at $44.80, nowhere near perfect, but not bad] by then. You might argue that I should have sold it all, but I tend to be as cautious selling stocks as I am buying them.
What is going on? Akamai has been growing revenues and profits. The question is, how fast can we expect growth to be in the future. Wednesday management said that Internet traffic this spring did not grow as fast as they expected, so they don't want to project as much growth for the rest of 2011 as they had in the past. [See my notes on the Akamai Q2 conference call for numbers and details]
I think the downward momentum has gone too far. That does not mean the stock price can't go lower, but it means I believe buying the stock at today's price is a good long-term investment. It might even be a good short term investment.
There are good, growing, well-managed technology stocks out there that have cheaper valuations (by P/E, etc.) than Akamai, but then I own several of them too. Akamai brings diversification to my portfolio. I believe I understand what Akamai does, how it makes it money, and what the competition is [See my extensive Akamai writings].
Internet traffic will continue to grow, and it will continue to become more complicated. Companies that depend on the internet need help with content delivery acceleration, with serving the fractured mobile device market, and with security. Akamai has managed to stay ahead of the competition for over a decade now. A slow quarter for internet traffic growth does not signal the end of Akamai. To me it signals a buying opportunity.
Do your research, think for yourself, and keep diversified!
See also Akamai Investor page