As the management of corporate networks grows ever more complex, niche business models have sprung up to help IT managers focus on various aspects of the networks.

Infoblox, which made its public debut two years ago, was seen as a rising star in a specific niche: hardware-based network controls that help secure firewalls, balance network loads and reconfigure networking paths. 

Shares surged in the latter stages of 2013, as the company had just delivered a stellar 33% sales growth rate in the fiscal year ended last July. Investors were expecting continued strong growth as management noted a swelling rate of new customer discussions. 

Yet toward the end of the year, management noted a slowdown in quote activity for new customers, and did so again early in 2014. Investors fled on both occasions, and shares are now near a post-IPO low.

 
This recent high-flier no longer seems like much of a growth story: Sales are now expected to grow at a mere 10% to 15% pace in fiscal (July) 2014 and 2015. 

Why did the strong growth suddenly hit a wall? 

First, management said that government sales, which had already been weak, have grown even weaker. 

Second, management’s decision to put many resources behind a new network security offering now seems premature. “While we remain convinced that security will drive future growth, we have not yet seen a revenue return commensurate with the investments that we have made to date,” said CEO Robert Thomas on a call with analysts. 

Yet management has issued a strong mea Culpa, noting that it can do a much better job on focusing on core areas of expertise. In a meeting with analysts in late February, management noted that Infoblox still faces a fast-growing target market.

“The company believes the significant growth in denial-of-service (DNS) attacks (up 216% in 2013) will increase awareness of the threat and drive demand for its DNS security solutions,” note analysts at Goldman Sachs, who rate shares a “buy” with a $27 price target, representing 35% upside.

At that analyst meeting, several of the company’s sales channel partners also discussed the company’s market. “One channel partner with 5,600 total customers highlighted that only a handful of its 300 Infoblox customers have purchased security products and it estimates that 75% of its Infoblox customers will eventually purchase Infoblox’s security products,” note Goldman’s analysts.

To be sure, this is now a wait-and-see stock. A key catalyst: Guidance for 10% to 15% sales growth for 2014 and 2015 looks increasingly conservative. Analysts at D.A. Davidson, for example, think “BLOX is well positioned for significant sustainable growth in the automated network control market, and it should be able to sustain at least 20% revenue growth for the foreseeable future.” If sales start to grow closer to a 20% pace, then this stock will be rewarded again by growth investors.

This company also provides network management services, though primarily for data center operators.

And as was the case with Infoblox, this was also seen as a great growth story a few quarters back when investors were paying top dollar for high-growth business models. Sales growth had exceeded 30% for each of the past four years, and investors were expecting more of the same in 2014 and 2015. 

So when management announced a few weeks ago that first-quarter sales would fall nearly 20% short of the $37 million consensus estimate and would grow just 11% on a year-over-year quarterly basis, investors quickly assigned a lower multiple on a lower growth rate. That double whammy has turned Imperva into one of the biggest losers of 2014.

Management’s explanation for the shortfall didn’t help provide support for the stock. “While our overall win rates remained consistent during the quarter, the extended sales cycles resulted from a combination of intensifying competition for large orders, which resulted in additional review and approval cycles,” noted CEO Shlomo Kramer in a company press release. Most analysts quickly slashed their ratings to “neutral,” as such problems can often extend out into several quarters.

Analysts at Sterne Agee, who had rated shares as “neutral” before the sudden plunge (due to lofty valuations) took a contrarian view. They actually boosted their rating to “buy” after the plunge, noting that “company fundamentals remain solid, despite remaining questions after the failed quarter and a necessary sales execution overhaul. Once the shock of the new guidance and the resulting knee-jerk sell-off clears out, the compelling product offering should allow for the company to reestablish the belief in its ability to resume accelerated growth.”

Their $35 price target represents 30% upside. Consensus forecasts that sales growth should bottom out at around 15% this year, and rebound above 20% next year.