Why Marketo Shares Dropped Like a Rock

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 Marketo (NASDAQ: MKTO  ) have dropped like a rock today, down by as much as 12% following an analyst downgrade.

So what: UBS dropped its rating on the marketing software maker from "neutral" to "sell," while keeping its $22 price target unchanged. The firm is concerned about Marketo's valuation, since shares have nearly doubled in less than two months since going public at $13.

Now what: Doing a comparables analysis, Marketo was trading at 11 times forward EV/S, putting it in the top quartile within its peer group. Such an optimistic valuation downplays the risks that the company is facing in achieving the levels of revenue growth that are being priced in. The company faces much larger competitors like salesforce.com that have loyal customer bases. Marketo may have simply gotten ahead of itself after trading as high as $27.47 a few days ago.

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

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