{"id":532039,"date":"2024-03-17T05:47:32","date_gmt":"2024-03-17T09:47:32","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=532039"},"modified":"2024-03-15T12:32:37","modified_gmt":"2024-03-15T16:32:37","slug":"why-buy-a10-networks-stock","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/why-buy-a10-networks-stock","title":{"rendered":"Why Buy A10 Networks Stock?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Although operating in a lucrative market, A10 Networks (ATEN) is seeing a pullback in its top line due to lower client capital expenditures. For investors, the question is whether that&#8217;s an opportunity to buy or a time to sell?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As digitization is becoming the norm in a highly connected working environment, safety is becoming of utmost importance. Cyberthreats are on the rise as increasing amounts of data are being targeted. Anything as simple as a Distributed denial-of-service (DDoS) attack can create a significant impact. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Furthermore, experts are concerned that<\/span><a href=\"https:\/\/www.cnbc.com\/2024\/03\/03\/cyber-physical-attacks-fueled-by-ai-are-a-growing-threat-experts-say.html\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">hackers using AI<\/span><\/a><span style=\"font-weight: 400;\"> could make an even bigger impact equivalent to a \u201ccyber-physical attack.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The cybersecurity industry has thrived amid this backdrop. But how has <\/span><b>A10 Networks, Inc. (<\/b><a href=\"https:\/\/financhill.com\/stocks\/nyse\/aten\"><b>NYSE:ATEN<\/b><\/a><b>)<\/b><span style=\"font-weight: 400;\">, a security and infrastructure solutions provider, capitalized on the lucrative opportunities?&nbsp;<\/span><\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/charts\/ATEN?defaultOverlays=EMA20%2CSMA50&amp;periodGrouping=daily&amp;defaultSeries=candlesticks\" width=\"720\" height=\"440\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p><span style=\"font-weight: 400;\">While shares of A10 Networks significantly outperformed the <\/span><b>SPDR S&amp;P 500 ETF Trust (<\/b><a href=\"https:\/\/financhill.com\/stocks\/nysearca\/spy\"><b>NYSEARCA:SPY<\/b><\/a><b>)<\/b><span style=\"font-weight: 400;\">, which represents the broader market, over the past month, their performance over the past couple of years has been underwhelming.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Can A10 Networks overcome the challenges it is facing, and is the stock a bargain at the current price level?&nbsp;<\/span><\/p>\n<h2><b>Subdued Demand Is Affecting A10 Networks<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The American business environment is cold amid macroeconomic challenges. North American service providers have cut their capital expenditures, which has impacted A10 Networks\u2019 top line performance. Although the company is increasing its focus on enterprises, as of the last quarter, it relied on service providers for<\/span><a href=\"https:\/\/s201.q4cdn.com\/775649631\/files\/doc_financials\/2023\/q4\/ATEN-Q4-2023-Earnings-Call-slides-v1.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">58% of its revenues<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Lower capex and long sales cycles from service providers reduced the company\u2019s product revenue by 18.2% to $40.6 million in the fourth quarter of fiscal 2023 compared to the year-ago period. This, in turn, led to total revenue decreasing by 9.3% year-over-year to $70.4 million.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A10 Networks also shows considerable reliance on the American economy, which should explain its macroeconomic impact on its financials. In the fourth quarter, 57% of its revenues came from the Americas, compared to 26% and 16% from the APJ and EMEA regions, respectively.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Furthermore, the U.S. economy is pivotal in its operations. In the fiscal year 2023, 53% of its top line accrued to the Americas, of which 45% came from the U.S. alone and only 8% from the rest of America.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Looking at its annual performance, 2023 was the only year A10 Networks\u2019 yearly growth trajectory was disrupted in four years. Revenue was $225.5 million in fiscal 2020; it increased in fiscal 2021 and 2022 to $250 million and $280.3 million, respectively before declining by 10% from 2022 to $251.7 million in fiscal 2023.<\/span><\/p>\n<h2><b>Increasing Margins of A10 Networks<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">In absolute terms, A10 Networks\u2019 profitability has declined. For fiscal 2023, non-GAAP gross profit and operating income fell from their year-ago levels, mirroring the revenue pullback.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, as a testament to the company\u2019s increasing operational efficacy, margins have seen sustained growth over four years without any disruptions in between.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The non-GAAP gross margin was 78.6% in 2020, 79.6% in 2021, 80.3% in 2022, and 81.7% in 2023. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Following a similar trend, the non-GAAP operating margin was 15.6% in 2020, 21.6% in 2021, 23.9% in 2022, and 24.6% in 2023.<\/span><\/p>\n<h2><b>Is A10 Networks\u2019 Dividend Safe?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A10 Networks has a short history of dividend payments. Due to a strong balance sheet, the company initiated dividend payments in October 2021, announcing a quarterly payment of<\/span><a href=\"https:\/\/investors.a10networks.com\/news-events\/news\/news-details\/2021\/A10-Networks-Reports-15-Organic-Growth-for-Q3-2021-10-28-2021\/default.aspx\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">$0.05 per share<\/span><\/a><span style=\"font-weight: 400;\">. Since then, it has taken a disciplined approach to capital returns and has paid regular quarterly dividends.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In November 2022, the initial dividend was raised by 20% to <\/span><a href=\"https:\/\/investors.a10networks.com\/news-events\/news\/news-details\/2022\/A10-Networks-Reports-Record-Quarterly-Revenue-of-72.1-Million-up-10.2-Driven-by-Balanced-Product-Customer-and-Regional-Mix\/default.aspx\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">$0.06 per share<\/span><\/a><span style=\"font-weight: 400;\"> quarterly, the same rate the company paid this month. In 2023, A10 Networks returned $17.8 million of cash to shareholders through dividends.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Its annual dividend of $0.24 yields 1.64% on current prices. It has a 44.58% payout ratio, which implies that the company is significantly reinvesting in its business instead of aggressively paying out its earnings to shareholders.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, considering the company\u2019s limited dividend-paying history, low cash flows from operations in 2023 and current business troubles, dividend payments cannot be termed sustainable.&nbsp;&nbsp;<\/span><\/p>\n<h2><b>CEO Selling A10 Networks Shares<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A10 Networks\u2019 CEO Dhrupad Trivedi has sold the company\u2019s stock multiple times this year while acquiring shares only once. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In January, he sold the shares twice,<\/span><a href=\"https:\/\/d18rn0p25nwr6d.cloudfront.net\/CIK-0001580808\/a4f2d6d9-2676-4073-9862-c4635dad47b6.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">8,809 shares<\/span><\/a><span style=\"font-weight: 400;\"> on January 24 and<\/span><a href=\"https:\/\/d18rn0p25nwr6d.cloudfront.net\/CIK-0001580808\/bfb7f3af-106e-4e12-a507-3074a3a23038.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">21,498 shares<\/span><\/a><span style=\"font-weight: 400;\"> on January 29, for a total value of approximately $415 thousand. In February, he sold<\/span><a href=\"https:\/\/d18rn0p25nwr6d.cloudfront.net\/CIK-0001580808\/f0777f29-4891-4ce3-8e53-25b4bd4c1d58.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">37,636 shares<\/span><\/a><span style=\"font-weight: 400;\"> for a total valuation of about $495,000.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, this month, under a previously set<\/span><a href=\"https:\/\/d18rn0p25nwr6d.cloudfront.net\/CIK-0001580808\/0fb899ad-1417-4215-8ada-d2e79eca883b.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">trading plan<\/span><\/a><span style=\"font-weight: 400;\"> following rule Rule 10b5-1(c), Mr. Trivedi sold<\/span><a href=\"https:\/\/d18rn0p25nwr6d.cloudfront.net\/CIK-0001580808\/f38be9b4-935b-4e4c-8c50-ebe6fc2548e5.pdf\" target=\"_blank\" rel=\"noopener\"> <span style=\"font-weight: 400;\">60,606 shares<\/span><\/a><span style=\"font-weight: 400;\"> for about $804,000. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">While insider selling is not always adverse or impactful, it undoubtedly raises some concerns regarding management\u2019s outlook on the company.<\/span><\/p>\n<h2><b>Why Buy A10 Networks?<\/b><\/h2>\n<p>A10 Networks is a buy according to <span style=\"font-weight: 400;\">Wall Street analysts, who expect a 9.1% hike in share price to the consensus target of $16 per share. Of the three analysts recommending the stock, two suggested buying it, and one advised holding it.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Earnings per share are forecast to rise by 5.3% in 2024. Its forward non-GAAP PEG ratio is 0.95, which is relatively cheap by industry standards.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A10 Networks is operating in a challenging macroeconomic environment, which has affected its top line. However, its margin growth and stable dividend demonstrate operational efficiency.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Although industry tailwinds might propel the stock\u2019s performance in the near future, insider selling raises some concerns. Hence, investors might take a cautious stance on the stock and wait for further developments.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Although operating in a lucrative market, A10 Networks (ATEN) is seeing a pullback in its top line due to lower client capital expenditures. For investors, the question is whether that&#8217;s an opportunity to buy or a time to sell? As digitization is becoming the norm in a highly connected working environment, safety is becoming of [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":532042,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"content-type":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[22],"tags":[1475,19,318],"class_list":["post-532039","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-aten","tag-sp-500","tag-tgt"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/financhill.com\/blog\/wp-content\/uploads\/2024\/03\/Untitled-design-2024-03-15T115020.101.jpg","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9czeV-2eph","_links":{"self":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532039","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/comments?post=532039"}],"version-history":[{"count":5,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532039\/revisions"}],"predecessor-version":[{"id":532045,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/532039\/revisions\/532045"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media\/532042"}],"wp:attachment":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media?parent=532039"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/categories?post=532039"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/tags?post=532039"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}