If you don't know any better, you might think that Xyratex
Shares of the British storage-systems builder are down more than 13% this morning, after the company coupled a positive earnings report with a seemingly pessimistic next-quarter forecast. Third-quarter sales increased 75% year over year to stop at $430 million, while non-GAAP earnings more than tripled to $1.20 per share. Both of these figures landed comfortably ahead of Street estimates.
However management said that about $70 million of these sales came from pulling forward what would normally be fourth-quarter orders. CEO Steve Barber seems to see this as a feature, not a bug, in fawning over his company's "excellent execution."
Xyratex's largest customer, NetApp
Recent buyout battles over storage specialists such as Data Domain and 3PAR have shown us how hot the storage sector is, and these trends have also pulled Xyratex's stock way up. Shares bought a year ago are worth 57% more today, even after that steep overnight fall. In the process, the former five-star CAPS stock has turned into a three-star nobody, seemingly on valuation issues.
That's kind of ridiculous for a stock that (including last quarter's profits) trades at less than 5 times trailing earnings. As hard drive builders Seagate Technology
Whether the market eventually corrects this obvious imbalance between business strength and market cap, or one of the big boys decides to buy out this industrywide parts provider, loading up on Xyratex today seems nearly guaranteed to produce nice returns. I'm jumping over to Motley Fool CAPS to rate this stock "outperform" over the next two to four years. If you agree with the value picture I see, feel free to do the same.