Why SolarWinds Stock Dropped

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 SolarWinds (NYSE: SWI  ) dropped 14% today as investors reacted to the company's acquisition plans.

So what: Yesterday, the company announced it will buy N-able, a cloud-based IT infrastructure company, for $120 million. This is expected to reduce 2013 earnings and there's no guarantee the acquisition will pay off, so investors sold off shares today.  

Now what: BMO Capital Markets analyst Karl Keirstead predicted the acquisition will reduce earnings by $0.11 this year, a significant amount when you expect acquisitions to add to a company. The stock was already richly priced at 29 times 2013 estimates before trading started, so this only makes that multiple look worse. There's a lot of risk in this acquisition, and given the stock's steep price, I'm definitely not a buyer today.

Interested in more info on SolarWinds? Add it to your watchlist by clicking here.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2447643, ~/Articles/ArticleHandler.aspx, 11/26/2014 2:06:09 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement