Buying Akamai

I would be doing that right now. I wrote about Akamai way back in February of 2006, when the stock was at $26. I was bullish on the company and the sector in general and I’m still bullish now. With more and more (not to mention higher quality) multimedia content being delivered across the internet, use of services provided by companies like Akamai will continue to grow quickly. The stock has fallen by about a third from its highs. The main reason was a not-spectacular earnings announcement and a slightly weaker forecast than was expected. Compared to its bigger competitors, Internap and Limelight, Akamai is the powerhouse and with many of its technologies patented, it’s probably not going to lose that position anytime soon.

Currently Akamai (Nasdaq: AKAM) is trading around $42. That puts it at a P/E of 33, which remarkably puts the PEG ratio at approximately 1.00. Forward looking, P/E is around 25. And based on their tendency to beat estimates, that should go down a bit. I’m predicting an end of 2007 stock price of $55-60. There’s a decent bottom forming in the $40-42 range and I believe the stock is due for a bounce to the high $40’s in the near future. The earnings announcement in July may serve as a catalyst for that.

Akamai (AKAM) chart - Yahoo! Finance

Limelight Networks will be IPO’ing tomorrow and it should do well. It speaks volumes for the industry and Akamai as well. There’s a lot of interest in this market, and unless you expect internet downloads to slow, this sector will be hot.

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