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How A10 Networks Stock Fell 25.5% in September

By Anders Bylund – Oct 6, 2020 at 9:31AM

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Investors stepped back from an overheated stock price last month.

What happened

Shares of A10 Networks (ATEN -1.55%) fell 25.5% in September 2020, according to data from S&P Global Market Intelligence. The stock was caught in the tech sector sell-offs in early September and three weeks later. Investors shrugged off the application delivery specialist's updated third-quarter guidance between the two sharp drops.

So what

On Sept. 17, A10 Networks published a set of guidance targets for the third quarter. Management did not provide guidance figures in the second-quarter report, so these expectations were brand new. Revenue should rise approximately 3% year over year to $54.5 million and operating expenses should stop near $34.5 million, down from $40.7 million in the year-ago quarter. Management said that A10 sees organic growth in a difficult environment, and the cost-cutting efforts should result in sustainable cash flows.

The board of directors also authorized a $50 million share buyback program that day, and CFO Tom Constantino announced his departure. Share prices hardly moved on this mixed bag of business news and the sell-off of high-flying stocks continued on Sept. 23.

A blue Ethernet cable plugged into a white cloud on a sky blue wall.

Image source: Getty Images.

Now what

A10 Networks entered September with stock prices near multi-year highs. Shares were changing hands at more than 170 times trailing earnings, setting A10 up for a pair of dramatic corrections. The stock still looks pricey at 130 times trailing earnings. At the same time, A10's guidance pointed to concrete improvements on both the top and bottom lines. CEO Dhrupad Trivedi sees 2020's financial difficulties as delayed sales rather than lost business.

"Customers are taking longer to make decisions and some larger deployments have been delayed as our customers deal with business restrictions and challenges related to the pandemic," Trivedi said in July's second-quarter earnings call. "We do not believe we have lost any business, and we continue to enjoy strong and steady demand for our solutions."

I'm not saying that A10 Networks is a no-brainer buy, but curious investors might want to take a closer look at this alternative play on the cloud computing market.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

A10 Networks Stock Quote
A10 Networks
$19.00 (-1.55%) $0.30

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