Why ScanSource Shares Tumbled

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 wholesale technology products distributor ScanSource (NASDAQ: SCSC  ) short-circuited, down as much as 16% following the release of its second-quarter earnings results.

So what: For the quarter, ScanSource reported an adjusted profit of $0.64, down from a year-ago profit of $0.77, as revenue slipped 4.5% to $747.7 million. Both figures actually surpassed the Street's expectations of $743.7 million in sales and a profit of $0.62. However, the wheels fell off the bus when ScanSource issued its third-quarter guidance, which came in well short of the consensus figures. Sales are expected to be in the range of $675 million to $695 million and EPS in a range of $0.48-$0.50. Wall Street had been expecting $731.8 million in revenue and $0.62 in EPS... ouch!

Now what: ScanSource definitely has a lot of flare for the dramatic, with big pops and drops usually on the docket when it reports. Because ScanSource rarely cues investors or analysts into its overall business trends in the middle of a quarter, we often wind up with double-digit pops and drops just like we're witnessing today. ScanSource looks admittedly inexpensive following today's plunge, but we have to take into consideration that it needs tech spending to increase in order to grow sales -- and spending is improving only at a snail's pace right now -- and that it's a cyclical business prone to the ebb-and-flow nature of the tech cycle. I'll keep an eye on ScanSource for sure, but I wouldn't rush to buy after today's guidance gaffe.

Craving more input? Start by adding ScanSource to your free and personalized Watchlist so you can keep up on the latest news with the company.

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