Why RealD Shares Got Crushed

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 3-D projection systems supplier RealD (NYSE: RLD  ) plunged 20% on Tuesday after its quarterly results and guidance came in below Wall Street expectations.

So what: RealD's wide first-quarter miss -- EPS of just $0.05 versus the consensus of $0.15 -- combined with a disappointing current-quarter-revenue outlook reinforces serious concerns of late overly slowing growth. Management cited a lower mix of recycled 3-D eyewear in shipments and spiking product costs as the primary reasons for the poor quarter, giving Wall Street plenty of reason to be worried about profitability going forward.

Now what: Management now expects its second-quarter revenue to decline from the year-ago period and also from the first quarter. "The prior-year quarter is a very tough comparison against Harry Potter and Transformers," CFO Andrew Skarupa reassured analysts in a conference call. "Both films generated more than $10 million in admission-based license fees in the September quarter a year ago." Unfortunately, when you couple the stock's forward P/E of 18 with the cost and revenue headwinds working against it, RealD doesn't seem worth the risk.  

Interested in more info on RealD? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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