Why MTS Systems 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 test systems and position sensors maker MTS Systems (Nasdaq: MTSC  ) plunged 14% today after its quarterly results missed Wall Street expectations.

So what: The stock has rallied nicely over the past six months, but a wide fourth-quarter miss -- EPS of $0.94 on revenue of $137.8 million versus the consensus of $1.02 and $146 million -- is triggering concerns over weak demand going forward. In fact, MTS saw sensor orders in the Americas drop 22% and gross margins decline 130 basis points, suggesting that its business is more susceptible to general economic softness than previously thought.

Now what: Management expects 2013 revenue and EPS growth in the range of 5%-10%, as well as a longer-term-revenue mark of $1 billion in 2018. "[W]e have a healthy balance sheet and annual operating cash flow capability to make the required investments to deliver this growth," CEO Dr. Jeffrey Graves said. "However, we recognize that the global economic environment is uncertain so we will be closely monitoring it for changes which may affect our outlook." Of course, with the stock now off more than 20% from its 52-week highs and trading at a forward P/E of eight, that uncertainty might already be baked into the valuation.

Interested in more info on MTS? 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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