Why Datalink Shares 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 Datalink  (NASDAQ: DTLK  ) plunged 24% Wednesday after the data center infrastructure specialist reported disappointing third-quarter results.

So what: Quarterly revenue rose by 33% year over year to $139.6 million, which translated to adjusted earnings that fell almost 19% to $0.13 per diluted share. For reference, analysts were looking for $144.72 million in sales, and earnings of $0.24 per share on the same basis.

Now what: CEO Paul Lidsky weighed in to explain that "unexpected product shortages and delivery issues with one of [their] top storage partners contributed to a 6% revenue decline," which brought the company's third-quarter numbers in at the low end of its own guidance. However, Lidsky assured investors those orders still remain on the books and revenue will be recognized in the fourth quarter.

Even so, investors were surprised when the company chose to issue in-line fourth quarter guidance for revenue of $160 million to $170 million. What's more, Datalink also said adjusted earnings should come in between $0.24 and $0.30 per share next quarter, or well below expectations for non-GAAP earnings of $0.33 per share.

Still, with shares trading around 21 times last year's earnings and only nine times next year's estimates, today's pullback seems a bit of an overreaction. As a result, I think this could very well serve as a solid buying opportunity for patient long-term investors.

This stock should have no problem maintaining its growth...
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