What happened

Content delivery network operator Limelight Networks (NASDAQ:LLNW) is having a rough Friday. Following Thursday night's third-quarter earnings report, Limelight shares dove as much as 17.7% today. At 2:30 p.m. EDT, the stock had recovered slightly to a 14.5% drop.

So what

The funny thing is, Limelight's report really wasn't bad. The company met Wall Street's earnings estimates of $0.03 per share and came in just above analysts' revenue projections as sales rose 6% to land at $49.3 million. Looking ahead, management narrowed Limelight's full-year earnings guidance around the upper end of the previously communicated range while holding revenue targets steady.

Blue Ethernet cable forming a cartoonish cloud shape against a white background.

Image source: Getty Images.

Now what

To arrive at today's sudden plunge, Limelight investors also shrugged off the only meaningful analyst reaction to the company's results. Cowen analyst Jonathan Charbonneau maintained his "outperform" ratio and $6.50 price target on the stock (some 28% above today's share prices), arguing that the stock remains undervalued and misunderstood. As CFO Sajid Malhotra has explained in so many words, today's Limelight is perfectly willing to lose low-margin business volume in order to retain and grow in a less price-sensitive part of the content delivery market.

At this point, Limelight shares have gained 15% in 2018 to trade at 24 times forward earnings. For a company showing 45% year-over-year earnings growth, that does look like a bargain.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.