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Why FormFactor, Inc. Fell 17% in October

By Anders Bylund – Nov 11, 2016 at 9:30AM

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The third quarter looked great, but management painted a gloomy picture of the next report.

Image source: Getty Images.

What happened

Shares of FormFactor (FORM 5.26%) fell 17.3% in October, according to data from S&P Global Market Intelligence. The month was working out just fine until Oct. 27, where the maker of engineering-oriented testing tools reported its third-quarter results. The next day, share prices plunged as much as 12% lower.

So what

In the third quarter, FormFactor's sales raced 87% higher year over year to land at $123 million. Adjusted earnings nearly quadrupled to $0.22 per share. The recently closed acquisition of testing-tools rival Cascade Microtech drove the fundamental financial figures sky-high. The results were also on the high end of management's guidance.

However, the company's fourth-quarter projections pointed to lower sales in the crucial probe card division, putting a damper on the quarter's total revenue guidance. Moreover, the absolute top end of FormFactor's earnings guidance was below the then-current average analyst estimate. That's why share prices took a steep tumble.

FORM Chart

FORM data by YCharts

Now what

Before crying crocodile tears over FormFactor's investors, you should consider that the stock roared into this report on a full head of steam. Before releasing the third-quarter report, FormFactor had gained a market-beating 17% year-to-date. Even now, FormFactor is back to above-average 2016 returns.

Trading near $10 per share today, FormFactor is a long way away from rebuilding the glory days of 2007 when share prices peeked over the $45 level. The Cascade deal is an earnest attempt to create economies of scale, which eventually should help the company's profit margins as well.

For now, FormFactor is a work in progress with a lot to prove.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends FormFactor.

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