NTAP (-20 @$ $76) Tumbles on declining margin forcast
*does it everytime...will be up in a week !
By Mark Lewis
When you're priced for perfection, it's easy to stumble. Data storage company Network Appliance tumbled 17% today after reporting strong quarterly earnings that were not quite strong enough to sustain this company's stratospheric valuation.
Sunnyvale, Calif.-based Network Appliance (Nasdaq: NTAP - news) had gained 14% yesterday to close at $96.25 as investors looked ahead to the release of its quarterly results after the closing bell. They didn't like what they saw. Today the stock gave back all of yesterday's gain and then kept falling. It was nudging below $80 in afternoon trading.
What was wrong with the report? Nothing. Revenue rose 109% to $260.8 million from the year-ago quarter and earnings were up 128% to $36.6 million. Network Appliance earned 10 cents per share for the quarter, beating analysts' consensus forecast by a penny. Yet the stock tanked because triple-digit growth is what investors have come to expect from Network Appliance. They were not surprised, so they were disappointed. ``There's no catalyst on the upside,'' says Glenn Hanus, a Needham analyst. ``And the valuation has been pretty high.''
Data storage is a hot sector, and Hanus says Network Appliance's results were excellent. ``This quarter was particularly strong in some of the new areas where they were trying to penetrate,'' he says. And Hanus discounts remarks by Network Appliance officials that the rate of growth may have peaked. The company has been saying that for several quarters, he says.
So why did the market react so negatively today? Investors are concerned that Network Appliance faces increased competition, as rivals such as EMC (NYSE: EMC - news) try to muscle in on its turf. ``EMC may announce a new product shortly,'' Hanus notes.
Any hint that future growth may slow is enough to spook investors. Network Appliance was selling at over 200 times earnings. The company posted ``outstanding'' results, Lehman Brothers analyst George Elling says, but when you're trading at that kind of multiple, beating the earnings forecast by a penny is not enough.
``They didn't blow away the numbers on the upside,'' Elling says. ``And high-multiple stocks tend to be volatile in an uncertain market environment.'' |
