Why Polycom's Shares Dropped

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 communications equipment provider Polycom (Nasdaq: PLCM  ) fell 16% today after the company reported earnings and guidance.

So what: For the second quarter the company reported a 4% rise in revenue to $379.3 million and earnings per share of $0.22. This was ahead of the $361 million in revenue and $0.20 in earnings per share analysts had expected.

But what spooked investors was the company's outlook. Current-quarter estimates of $325 million-$335 million in revenue and between $0.06 and $0.09 in earnings per share were below expectations and fourth-quarter estimates fell short as well.

Now what: Polycom is expecting to divest from its enterprise wireless business, which accounts for about $20 million in revenue, so this accounted for some of the missed guidance but not all of it. The bottom line is that revenue isn't growing and it might actually decline significantly in the remaining quarters of this year. The stock doesn't look expensive trading at 12 times trailing earnings but the slowing revenue growth will keep me from buying the drop in price today.

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