Acme Packet Must Dodge the Falling Anvil

Tickers in this article: CIEN VZ CSCO ADTN CMCA APKT JNPR
NEW YORK ( TheStreet) -- Investors placing bets in the long term growth potential of telecommunications equipment makers such as Ciena (CIEN) and Juniper (JNPR) have to first hope that carrier spending from the likes of AT&T (T) , Verizon (VZ) and Comcast (CMCSA) will return to their previous lofty levels.

Carriers Not Carrying Their Weight

However, with their spending having lacked confidence all year and looking less likely to rebound, I'm starting to wonder if a stock such as Acme Packet (APKT) which has been all over the map this year can still produce the premiums its current multiple suggests -- particularly for the fact that roughly 80% of its revenue comes from carrier spending.

Both of those companies have been shown to care more about other forms of capital reinvestments such as share repurchase programs and less on equipment. But investors have shown to not care.

Instead, on Tuesday, the stock surged more than 7% closing at $18.87 with no positive news other than Acme announced the date of its third-quarter earnings report Oct 25.

As a leader in session delivery network solutions, the company does have a pretty good chunk of its market, but its management showed little confidence that it can sustain its revenue levels by having cut guidance in its second-quarter report.

What's more, rivals such as Ciena, Adtran (ADTN) and Alcatel-Lucent (ALU) have shown no growth momentum as each have been awaiting an anticipated second half surge in carrier spending that has yet to materialize. And likely won't. So it would seem investors in this sector and in particular those causing the surge in Acme Packet on Wednesday are possibly waiting in vain.

What Is Acme Really Worth?

It seems investors and analysts are either unable to agree or make up their minds about the value of the company. As noted above, the stock has been all over the map this year.

After starting the year at $31.91, it then surged more than 17% to $36.27 in February. Five months later, the stock dropped to its 52-week low of $13.26 or 63% of its value as it was hurt by slow revenue growth and weakness in carrier spending.

Since that low period of $13.26 it has risen as high as 50% to $20.14 to where it sits today at just under $19. What's its real value? It seems investors have had a hard time justifying the lofty forward multiples absent sustainable growth momentum.

The stock has moved in both directions by as much as 50%. Is there anything to be made of the indecisiveness? Should the drastic correction be interpreted as an overreaction or has the stock now approached its fair market value?

That said, despite its recent drop from $36, the stock is far from being considered cheap as it yet trades at a price-to-earnings ratio of almost 70. Also there are increasing concerns about the competition.