We think that ViaSat Inc. (NASDAQ:VSAT) currently is a better bet compared to F5 Inc. (NASDAQ:FFIV). VSAT stock trades at 1.3x trailing revenues, much lower than that of FFIV, whose P/S multiple stands at 5.8x. Does this gap in the companies’ valuations make sense? We don’t think so and we expect ViaSat to close this gap. While both companies weren’t significantly hampered by the pandemic, VSAT has seen faster sales growth over the past five fiscal years than FFIV. ViaSat, a leading communications company, has seen its revenues grow from $1.6 billion in FY ’17 (VSAT’s fiscal year ends in March) to $2.5 billion on an LTM basis. At the same time F5, a networking giant, has seen its sales rise from $2.1 billion in FY ’17 (F5’s fiscal year ends in September) to $2.5 billion on an LTM basis. For details about FFIV revenues and comparison to peers, see F5 Networks (FFIV) Revenue Comparison.
Having said that, we dive deeper into the comparison, which makes ViaSat a better bet than FFIV, especially at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at detailed historical revenue growth as well as operating income growth and financial position, combined with expected returns. Our dashboard F5 Networks vs ViaSat: Industry Competitors, But ViaSat Is A Better Bet has more details on this. Parts of the analysis are summarized below.
1. ViaSat Inc. Ahead On Revenue Growth
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ViaSat has witnessed much faster consistent revenue growth over the years compared to FFIV. VSAT’s sales have jumped from $1.6 billion in FY ’17 to $2.5 billion on an LTM basis, while FFIV saw slower growth over this period, with sales rising from $2.1 billion in FY ’17 to $2.5 billion currently.
Additionally, VSAT’s pre-Covid annual sales growth stands at almost 15%, much higher than FFIV’s 4%, while growth during Covid also stands higher at 11.7%, compared to FFIV’s 4.8%.
Additionally, a look at recent trends reveals that VSAT witnessed 26.5% YoY and 5.5% QoQ sales growth for its most recent quarter (Q2 ’22), compared to FFIV’s 11.7% and 1%, respectively.
Finally, the last three FY sales growth for ViaSat stands at 13%, much more than FFIV’s 4%.
2. EBIT margins And Financial Position: Mixed Bag
VSAT’s P/EBIT ratio stands at around 44.7x currently, more than that of FFIV’s 40.1x. However, VSAT’s LTM EBIT margins currently stand at 3%, much lower than FFIV’s 14.4%, but VSAT is ahead in terms of LTM margin change compared to the last three fiscal years, with 2.5% growth vs FFIV’s -7.9%.
FFIV’s debt as a % of equity stands at 15.6% currently, lower than VSAT’s 35.2%. Additionally, FFIV is ahead in terms of cash as a % of assets too, with 16%, much higher than VSAT’s 3.6%.
For additional details about ViaSat’s historical returns and comparison to peers, see ViaSat (VSAT) Stock Return.
3. Finally, ViaSat Is Ahead In Terms Of Expected Returns
Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe ViaSat is the better choice. ViaSat’s LTM revenues of $2.5 billion are expected to rise at a CAGR of almost 11% as per our estimates, taking revenue numbers three years out to as high as $3.5 billion. Assuming ViaSat’s P/S ratio to rise marginally to 1.4x, this means that the market cap would rise to $5 billion, an upside of more than 30% over three years.
In comparison, given historical trends, we expect FFIV’s sales to rise slower at a CAGR of just 3.9%, taking revenue in three years to a little over $2.8 billion. However, considering the P/S for FFIV to pull back to an average level of 5x, we estimate the market cap to remain roughly unchanged at $14 billion over the period.
The Net of It All
While both companies’ sales stand around the same level, VSAT has seen faster revenue growth over the years, but still has lower margins than FFIV. Having said that, our comparison of the post-Covid recovery above, shows that ViaSat has shown stronger sales and margin growth than FFIV recently, and we believe profitability will catch up soon enough. Due to this, we believe that ViaSat deserves a higher P/S multiple, and we expect VSAT to close the current gap in valuation between the two companies. As such, we believe that ViaSat stock is currently a better bet compared to FFIV stock.
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|S&P 500 Return||-2%||-2%||108%|
|Trefis MS Portfolio Return||-7%||-7%||264%|
 Month-to-date and year-to-date as of 1/18/2022
 Cumulative total returns since the end of 2016