20% Downside For Akamai Stock?!

+6.65%
Upside
109
Market
116
Trefis
AKAM: Akamai logo
AKAM
Akamai

Akamai stock (NASDAQ: AKAM) is up around 16% since the beginning of this year, and at the current price of around $100 per share, we believe Akamai stock has a significant downside.

Why is that? Our belief stems from the fact that Akamai’s stock remains about 55% higher than the low seen in early 2018. Our dashboard What Factors Drove 54% Change In Akamai Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Relevant Articles
  1. Akamai Stock Has Seen Little Change Since 2021. Will A Q3 Earnings Beat Drive The Stock Higher?
  2. What To Expect From Akamai’s Q2 Earnings?
  3. Cloud Business In Focus As Akamai Reports Q1 Results
  4. Will Akamai’s Cloud Computing Push Pay Off?
  5. Up Almost 6% Last Month, Can Akamai Continue Its Run?
  6. Here’s Why Akamai Stock Has Failed To Outperform The S&P Since 2017

Some of this rise over the past 2 years is justified by the roughly 16% growth seen in Akamai’s revenues, which translated into a further 115% growth in Net Income, largely due to a lower effective tax rate (29% in 2017 vs 10% in 2019). This combined with a 5% drop in outstanding share count (total share buybacks of over $1 billion) led to a 126% growth in earnings on a per share basis.

Finally, Akamai’s P/E ratio dropped from about 50x at the end of 2017 to 29x at the end of 2019. While Akamai’s P/E has risen to 34x now, given the volatility of the current situation, there is additional possible downside for Akamai’s multiple when compared to levels seen in the past years – P/E of 29x at the end of 2016, and again at the end of 2019.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus, and the resulting lock downs and quarantine means that a lot of businesses are shifting online and there has also been an increase in new blogs and websites. However, a lot of existing companies are struggling and could be looking to cut web server costs, shifting to cheaper server providers. The mixed impact this could have on the company is still not clear, and we believe Akamai’s Q2 results in July will paint a clearer picture.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 34x to around 29x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $80.

While Akamai stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams