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Why Financial Engines Shares Plunged Temporarily

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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 Financial Engines (NASDAQ: FNGN  ) , a financial management services company, dropped as much as 13% following the release of its fourth-quarter earnings report. Shares have since rebounded to being down only 3% as of this writing.

So what: For the quarter, Financial Engines reported a 26% increase in total revenue to $51.4 million, with adjusted net income rising a more subtle 14% to $0.16. Financial Engines' management attributed growth in professional management services as the single biggest factor for its underlying quarterly growth. Relative to Wall Street's estimates, Financial Engines' EPS was right in line, however, revenue fell shy by a hair with the Street expecting $51.9 million. For 2013, the company is forecasting revenue of $224 million to $229 million, right in line with current estimates.

Now what: Today's move lower appears to have less to do with the fractional revenue miss and more to do with the fact that the company is valued at roughly 52 times 2013's profit forecast. No matter how quickly it adds 401(k) investment client accounts to its management service portfolio, it's probably going to be at least two years before this valuation makes sense -- and that's if the share price remains constant to where it is now. I have a strong suspicion you can find considerably cheaper financial management service alternatives throughout the sector.

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

With so many of the big finance firms getting bad press these days, you may be inclined to stay away from the sector entirely, but that could be a huge mistake. In fact, some of the best opportunities over the next few years can be found there, including one small, under-the-radar bank. It's been called one of "The Stocks Only the Smartest Investors Are Buying." You can learn about it, and more, in The Motley Fool's exclusive free report. Just click here to keep reading.

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Related Tickers

9/30/2016 4:00 PM
FNGN $29.71 Up +0.88 +3.05%
Financial Engines CAPS Rating: **