Why iGATE Corporation Shares Plunged

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 iGATE Corporation (NASDAQ: IGTE  ) plunged as much as 10% during Thursday's intraday trading after the company beat quarterly earnings and revenue expectations, but management made cautious statements regarding revenue and margins in the first half of 2014.

So what: Quarterly net revenue rose 10.2% year over year to $299.3 million, which translated to an 8.9% increase in adjusted net income to $0.49 per share. By contrast, analysts were modeling earnings of $0.48 per share on sales of $296.14 million.

However, while iGATE doesn't typically provide formal guidance, CEO Ashok Vemuri commented his company is "expecting fairly small sequential growth" for the first half of 2014, thanks to a combination of normal seasonality and "some large programs coming to their natural conclusions." In addition, Vemuri said he expects iGATE to continue to strategically scale back some of its smaller accounts to focus on those with "meaningful opportunity for expansion."

Finally, Vemuri asserted gross margin will continue gradually declining in the first half of 2014 (from around current levels at 39.8%) as iGATE ramps up investments to expand its physical infrastructure. With this in mind, gross margin should also return back to more normal levels in the 40% range toward the end of 2014.

Now what: iGATE added nine new customers in Q4, including five Fortune 1000 companies, so the value propositions of its offerings look intriguing. What's more, though it'll take some time to bear fruit, I certainly can't fault the company's efforts to invest in long-term growth.

But the stock still doesn't look particularly intriguing as it trades around 34 last year's earnings and 18 times next year's estimates. At the very least, then, I think investors would do well to add shares of iGATE Corporation to their watchlists. If the company's investments prove effective, its stock could reward patient investors down the road.

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