Why Ciena Shares Sank

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 networking equipment specialist Ciena (Nasdaq: CIEN  ) plunged 16% today after its quarterly results and guidance came in below Wall Street expectations.

So what: The stock surged earlier this year on management's optimistic view of a second-half pickup in demand, but today's third-quarter miss -- EPS loss of $0.04 versus the consensus $0.02 loss -- coupled with downbeat guidance for the current quarter is forcing Mr. Market to sober up. Telecom companies continue to slash spending and delay investments amid the sluggish global economy, reigniting concerns over Ciena's growth going forward.

Now what: Management now sees fourth-quarter revenue of $455 million to $480 million, much lower than the average analyst estimate of $499.5 million. "We are experiencing the effects of ongoing macroeconomic challenges and slower than expected roll-outs of new design wins," President and CEO Gary Smith said in a statement. With the stock still well above its 52-week low even after today's plunge, I'd wait for much more of a pullback before taking on those headwinds.

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