How Barracuda Networks, Inc. Gained 46% in July

By Markets Fool.com

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What: Shares of Barracuda Networks (NYSE: CUDA) rose 45.8% in July 2016, according to data from S&P Global Market Intelligence. The catalyst for Barracuda's surge was a strong first-quarter earnings report.

So what: The network security specialist saw sales rise 11% year over year in the first quarter, while analysts would have settled for 7% revenue growth. On the bottom line, Barracuda nearly doubled Wall Street's consensus target, with adjusted earnings of $0.20 per share.

The company lengthened its list of active customers by 14%, lifted its recurring revenue contracts 20% higher, and generally impressed in this report.

CUDA data by YCharts.

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Now what: As good as the first-quarter results were, Barracuda isn't exactly known for posting predictably great numbers. Two of its last four quarterly reports have triggered next-day share price plunges of 33% or more. All told, the stock is down 18% over the last 52 weeks.

The company is chasing market share in the fledgling market for Internet of Things security tools. It's a crowded sector, and Barracuda is one of the smaller players in it. These efforts could spark serious revenue and bottom-line growth over the next few years or perhaps attract suitors for a buyout exit. But that's only if the strategy works out as planned, which isn't always the case for this company. There's still a lot of room for swings to the downside.

In short, Barracuda is a promising but risky bet. Ride those IoT chips if you want to -- or don't. Current shareholders who don't want to deal with huge volatility could take their July profits and walk away at this point.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.