Verisign stock (NASDAQ: VRSN), a domain name provider, is believed to be a better pick than its industry peer, F5 Networks stock (NASDAQ: FFIV), an application security and cloud networking company, due to Verisign’s superior profitability and solid financial position. Investors have assigned a higher valuation multiple of 11.6x revenues for Verisign, compared to 3.7x revenues for F5. Despite both FFIV and VRSN underperforming the broader markets, with VRSN seeing a decline of 20% and FFIV experiencing little change, F5’s revenue growth has been slightly better, with a 6.2% average annual growth rate in the last three years compared to 5.7% for Verisign. F5’s revenue growth has been driven by services and product revenue growth due to increasing demand and entry into new markets, while Verisign has seen revenue growth driven by higher demand for domain names.
F5’s operating margin improved from 17.1% in 2020 to 19.1% in 2023, while Verisign’s operating margin expanded from 65.2% to 67.0% in 2023. Verisign’s last twelve-month period operating margin of 67.3% fares far better than 21.8% for F5. Looking at financial risk, F5’s 2.6% debt as a percentage of equity is lower than 10% for Verisign, but Verisign’s 57% cash as a percentage of assets is much higher than 26% for F5. When assessing prospects using P/S as a base, it is believed that Verisign will offer higher returns in the next three years as compared to F5.
In terms of valuation multiples, VRSN fares better with a trading at 11.8x revenues, compared to its last five-year average of 16.2x, while F5 stock is trading at 3.7x revenues, compared to its last five-year average of 4.1x. It is expected that VRSN will offer higher returns in the next three years, with an expected return of 18% over this period compared to an 8% expected return for F5, based on Trefis Machine Learning analysis – F5 vs. Verisign. While VRSN stock may outperform FFIV, it is helpful to see how F5’s peers fare on metrics that matter.
In the midst of the current uncertain macroeconomic environment with high oil prices and elevated interest rates, it is predicted that both FFIV and VRSN may see higher levels, with VRSN expected to outperform FFIV in the next three years. Despite both stocks underperforming the S&P in recent years, it has been difficult for individual stocks, including heavyweights in the Information Technology sector, to consistently beat the S&P 500. The Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk versus the benchmark index.
While F5 may have seen slightly better revenue growth and has a better debt position, Verisign is far more profitable and has more cash cushion. Overall, it is expected that Verisign will offer better returns than F5 in the next three years, based on factors such as historical revenue growth, stock returns, valuation, and profitability. Investors looking for potential investment opportunities within the technology sector may find Verisign stock to be a more promising option compared to F5 Networks stock.
