Why Checkpoint Systems Shares Plummeted

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 Checkpoint Systems (NYSE: CKP  ) plunged more than 24% during intraday trading Thursday after the company reported disappointing third-quarter earnings and reduced its full-year guidance.

So what: Quarterly sales rose 3.3% to $174.5 million, which translated to non-GAAP net income of $0.22 per share. By contrast, analysts were calling for for adjusted earnings of $0.29 per share on $174.56 million in sales.

More worrisome, however, was that Checkpoint Systems also reduced its full-year 2013 outlook, and now expects net revenue in the range of $680 million to $695 million, with non-GAAP earnings per share of $0.40 to $0.50. Previously, the company had projected full-year 2013 sales of $685 million to $700 million, and adjusted earnings of $0.65 to $0.75. Meanwhile, analysts were modeling full-year 2013 revenue of $692 million and adjusted earnings of $0.65 per share.

Now what: Checkpoint Systems' Management made the revisions based "various internal and external headwinds" which are negatively affecting current market conditions, as well as current customer orders and commitments.

The stock doesn't look particularly expensive trading around 14 times next year's estimated earnings but, given Checkpoint's projected weakness, it's hard to blame investors for taking some money off the table; even after today's pullback, shares have risen nearly 60% over the past year. Until Checkpoint can prove it has what it takes to continue maintaining sustained profitability over the long run, you'll find me on the sidelines.

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