Buy Alert: May 17, 2013

Marcus Haber | May 17, 2013

Buy Alert: May 17, 2013

Trade Details

Buy Aruba Networks (ARUN) July 2013 $13 Calls for $1.20 or better

Why?

Aruba Networks provides network access solutions for the wireless market. The company preannounced worse than expected earnings and the shares got hammered. Then, management revised the outlook even lower when the earnings actually came out. And, the shares got hammered again.

The big reason for the company’s financial troubles is Cisco Systems (CSCO). Cisco is a much bigger company and has been aggressively cutting prices in the space ARUN competes in. So far, it’s been working very well for CSCO and very poorly for ARUN.

However, ARUN is still a solid company with growing revenues. It’s losing on price competition, not on the quality of its products. The company is also sitting on a $400 million in cash, so management can very quickly make decisions favorable for shareholders.

This is a classic overreaction. Let’s buy ARUN calls and wait for a bounce back. We’ll go out to July and give ourselves some time on this one.