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.
So what: Mellanox shares have soared in 2012 on breakneck sales growth, but downbeat guidance from tech bellwether Intel suggests a larger-than-expected slowdown in the sector. Analyst Stifel Nicolaus even cut its recommendation on Mellanox from buy to hold on a forecast of slowing demand going forward, making the decision to flee the sector that much easier for shareholders.
Now what: I wouldn't be so quick to pounce on this plunge. Even with today's pullback, Mellanox shares are still up a staggering 210% year to date and trade at a lofty P/E of around 75. Given the clear demand headwinds working against the semiconductor space, Mellanox's risk-reward trade-off seems particularly unfavorable at this point.
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