Ruckus Wireless (RKUS) Is This Week's "Unloved" Stock to Buy

Money Morning's "unloved" stock to buy this week is smart Wi-Fi technology provider Ruckus Wireless Inc. (NYSE: RKUS).

An unloved investment is one that's been beaten down - but is actually a great value. Investors then get an amazing entry point into a good long-term investment.

Ruckus stock came to the attention of Money Morning Defense & Tech Specialist Michael Robinson in late September. He liked the fact that RKUS supplies a technology that will soon be in very high demand.

Ruckus Wireless: About the Company

Ruckus stockFounded in 2004, Ruckus Wireless started out serving the residential Wi-Fi market. In the decade since, the Sunnyvale, Calif.-based company evolved into a global supplier of advanced wireless technology to cities and corporations. Ruckus sells high-capacity Wi-Fi access points as well as cloud-based Wi-Fi access and location services. RKUS is best known for a technology it calls "Smart Wi-Fi."  It's designed to work in dense and noisy areas such as urban centers and stadiums. The company's 44,000 clients include such familiar names as Sprint Corp. (NYSE: S), Time Warner Cable Inc. (NYSE: TWC), and LaQuinta Holdings, Inc. (NYSE: LQ). Ruckus stock went public in November 2012. RKUS employs about 800 people. It has a market cap of $800 million.

Ruckus Stock: Why It's Unloved

Ruckus stock chartAmong other things, Ruckus stock is suffering a long-running hangover from an overpriced IPO. In the two months after it went public, RKUS stock soared by more than 100%. But six months later, Ruckus stock was down 50%. It sank as low as $10.24, well below the $15 offer price. RKUS has bobbed up and down since, and as of today (Friday) had skidded to $9.94. More recent catalysts include a slight miss in its 3Q earnings. Ruckus reported revenue of $85 million, but the Wall Street consensus was for $85.1 million.

"As we have seen before, the market overreacts to even the slightest of misses," said Robinson. "And that's clearly the case here."

But that was back on Nov. 3. Since then a string of insider selling reports have pummeled Ruckus stock. Since Nov. 7, Ruckus has had no less than 12 instances of insider selling. The four that have come after the first of the year have been particularly damaging, pushing RKUS stock down more than 18%.

But the prospects for Ruckus stock are better than many seem to think...

Why Ruckus Is a Stock to Buy

Whatever its short-term issues, Ruckus is a great long-term play for the Internet of Things. That's a shorthand term for the trend toward ordinary devices having Wi-Fi chips built into them. The IoT will allow people to control their home appliances from their smartphone, and will allow "smart" refrigerators to send you a message telling you that you're out of milk or eggs. All this network chatter will require more robust hardware, however. And that's what Ruckus does. The number of IoT devices is expected to more than quadruple in just the next four years. It's a massive opportunity for RKUS. Now let's take another look at that "bad" Q3 earnings report. On earnings per share (EPS), Ruckus made $0.13, easily outpacing the forecast for $0.10. That was a 160% higher from the same period a year earlier. And while revenue missed, it was a 23.3% increase year over year. The fact is, Ruckus is growing and will keep on growing. EPS for 2014 is expected to come in at $0.44, with an increase in 2015 to $0.60. (RKUS reports Q4 earnings on Feb. 10). Now check out the price-to-earnings ratio: currently it's a lofty 140.53, somewhat high even for a tech stock. But its forward P/E, which uses the coming 12 months rather than the trailing 12 months, is just 16.42. Plus, Ruckus has a clean balance sheet with no debt.

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"This is an exciting company and a great play on the high-growth market for broadband wireless technology," Robinson said.

Investing in Ruckus Stock (NYSE: RKUS)

While investors have turned away from RKUS stock, two analysts (Oppenheimer and Northland Securities) have upgraded it in just the past two weeks. And it's a consensus buy among the 20 analysts that follow Ruckus stock. The one-year target is $15.18, nearly 60% higher than where RKUS is trading now. Any level under $10 is a pretty good entry point. Watch for the Q4 earnings on Feb. 10. RKUS stock will be sensitive to a miss, but remember - this is a long-term play.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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