Quest Software Shares Plunged: What You Need to Know (QSFT)

Quest Software Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of enterprise systems management software company Quest Software (Nasdaq: QSFT ) are tumbling 12% today after issuing less than stellar second-quarter preliminary results.

So what: This morning’s preliminary report was negative across the board. Quarterly revenues are expected to be in the $201 million-$204 million range rather than the expected $204.4 million. Even worse, profits and margins are expected to take it on the chin. Operating margins are expected to fall to 19%-20% from a prior outlook of 21%, while quarterly earnings should come in around $0.22-$0.24 as compared with analysts’ current projections of $0.29. Even the company’s revenue growth rate is expected to tumble down from 16% to 11%-12%.

Now what: Quest highlighted lower than expected return rates from high investment and acquisition costs as the primary reason for the expected earnings shortfall. Thankfully, that leaves hope for rivals Symantec (Nasdaq: SYMC ) and Computer Associates (NYSE: CA ) that this isn’t a sectorwide contagion, but it undoubtedly puts Quest Software on watch. Quest will have to do more with what it currently has rather than expanding by acquisition if it hopes to keep shareholders satisfied. I’d advise waiting for tangible results before jumping in after today’s downward move.

Want to keep up on the latest from Quest Software? Add it to your watchlist.

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