Why Gigamon 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 Gigamon (NYSE: GIMO  ) plunged more than 17% during intraday trading Tuesday after the network traffic visibility specialist beat analysts' estimates with its third quarter results, but later issued weak forward earnings guidance.

So what: Quarterly revenue rose 52% year over year to $39 million, which translated to adjusted net income of $5.8 million, or $0.18 per diluted share. Both numbers exceeded analysts' expectations, which called for adjusted earnings of just $0.15 per share on sales $38.34 million.

However, management also stated on Gigamon's subsequent earnings conference call that they expect fourth-quarter revenue of $40.5 million to $42.5 million, with adjusted earnings per share of $0.10 to $0.12. While analysts had expected sales at the low end of Gigamon's expected range, they were looking for higher adjusted earnings of $0.14 per share.

Now what: It doesn't help that Gigamon also recently announced a massive follow-on offering of 5.1 million shares at $38.50 per share, which included 300,000 shares from Gigamon itself and 4.8 million shares from selling stockholders. Of course, that was a not-so-subtle attempt to take advantage of the stock's nearly 40% run-up since the company went public at $19 per share in June.

As it stands, with the stock currently trading at an expensive 68 times next year's estimated earnings (even after today's plunge), its hard to blame investors for following suit.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On November 05, 2013, at 7:24 PM, randysandy wrote:

    So Steve: I listened to the conference call. What did they say was the 2014 guidance? I heard them say they don't give guidance past 1 quarter. What did you hear?

  • Report this Comment On November 06, 2013, at 12:26 AM, TMFSymington wrote:

    @randysandy, That's right; they did say they aren't commenting on next year's guidance as they "typically guide one quarter at a time."

    That's not all that unusual, but certainly didn't stop analysts from pressing the issue during the Q&A to try and get a better idea of how quickly Gigamon is going to grow next year. Management didn't provide much by way of a specific response to those questions -- short of relatively vague statements conveying confidence in their long-term position, anyway.

    That doesn't mean they won't continue growing quickly (or even that the stock can't continue rising), but the share price is just a bit rich for my taste at this point given the uncertainty.

    Fair enough?

    Fool on!

    Steve

  • Report this Comment On November 06, 2013, at 8:10 AM, randysandy wrote:

    At what price should it be?

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