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 Mellanox Technologies (NASDAQ: MLNX ) lost nearly 13% of their value today despite beating expectations last night. Analysts at two investment firms are not at all convinced that last night's good news will translate into long-term strength.
So what: Mellanox reported $83.1 million in revenue and earnings of $0.10 per share, beating the top-line consensus of $80.9 million and the bottom-line consensus of $0.04 per share. However, revenues declined by 6% year over year. This should be ameliorated somewhat by Mellanox's guidance of 14% revenue growth from first to second quarter -- equal to a strong $94.7 million in revenue. Analysts at Needham, in downgrading Mellanox to "hold" from "buy," disliked Mellanox's lack of clarity and the "lumpiness" in Mellanox's business model, which tends to be erratic from quarter to quarter. Mizuho Securities downgraded the company from "buy" to "hold," citing a lack of upside catalysts and a high valuation relative to its peer group.
Now what: It wasn't all negativity today. JMP Securities reiterated its buy rating on Mellanox after the crash. All told, analysts are relatively split between buy and hold ratings now, implying that no one really seems to think there's a real downside, either. If you take the long-term view (and you should), you might want to investigate this company to see if there's a story here worth watching for more than the next quarter. Just be prepared for the possibility of a long wait for shares to rise.
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