Please ensure Javascript is enabled for purposes of website accessibility

Why Ceragon Networks Stock Fell 11.4% This Morning

By Anders Bylund – Nov 1, 2021 at 5:22PM

Key Points

  • Faced with difficult component and shipping challenges, Ceragon offered modest guidance targets for the next quarter.
  • The network infrastructure stock could be a buy today, but only for patient investors.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The backhaul networking expert's third-quarter results were robust, but investors are shying away from management's modest fourth-quarter guidance.

What happened

Shares of Ceragon Networks (CRNT 1.16%) dove as much as 11.4% lower in Monday's early trading. Market makers shrugged off the company's solid third-quarter results to focus on disappointing guidance targets for the fourth quarter instead.

So what

In the third quarter of 2021, Ceragon's revenue rose 8% year over year to $76.1 million. Adjusted earnings stopped at $0.02 per diluted share, down from $0.03 per share in the year-ago period. Your average analyst had been looking for a break-even bottom-line reading on sales near $73.3 million.

Ceragon provided financial guidance for the last report of the 2021 fiscal year. The revenue target was unchanged from the second-quarter report's outlook, pointing to annual sales of roughly $290 million. That works out to a fourth-quarter target in the neighborhood of $71.6 million, compared with the current analyst view of approximately $77.4 million. On the bottom line, Ceragon's management expects a break-even total in the second half, which adds up to a net loss of roughly $0.03 per share in the fourth quarter. Here, the Street was expecting a net profit of the same size.

Collage of a person using a smartphone, a city skyline, and a cell tower.

Image source: Getty Images.

Now what

The modest guidance was based on operational challenges from the ongoing shortage of semiconductors and other components, aggravated by slow and expensive shipping.

These economic challenges are holding Ceragon back from making the most of the rising global demand for 5G backhaul services. That being said, the company's shareholders are still enjoying a market-beating return of 55% over the past year and the stock looks affordable at a price-to-sales ratio below 1. I wouldn't bet the farm on this volatile small-cap stock, but Ceragon does look spring-loaded for robust returns when the shipping and microchip supply situations get back to normal. That could take years, though -- so investors need to bring lots of patience to this opportunity.

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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.