What happened

Shares of high-performance auto parts manufacturer Holley (HLLY 5.51%) ran off the road in July, according to data from S&P Global Market Intelligence, plunging 23.9% and all of it coming at the very end of the month.

Holley provided a preliminary look at its second-quarter results and revised full-year guidance lower, which caused the market to slam the brakes in what had been looking like a good month for the auto parts maker.

So what

Holley stock had been riding a wave higher all across July, closing out the day before its business update some 20% above where it started the month. In fact, Holley had surged 48% above its mid-May low point when it announced the snarls surrounding its supply chain were taking a toll on its business.

CEO Tom Tomlinson said computer chip shortages for automobiles, coupled with other problems within its supply chain that prevented it from making and shipping some of its most popular products, led to second-quarter sales falling short of expectations.

Revenue for the quarter is expected to be down 7% from last year at $179.4 million while Holley's preliminary gross profit would be off 7.6% to $71.3 million. Equally alarming was the hit Holley would take to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which was expected to crater 31.3% to $37.2 million. 

What probably hurt Holley more was the impact it was going to make on the parts maker's full-year business. Sales are forecast now to be in a range of $700 million to $725 million, an 8.4% drop at the midpoint from its previous guidance of $765 million to $790 million, while adjusted EBITDA is being guided to a range of $135 million to $145 million from its prior forecast of $186 million to $194 million, a 26% reduction at the midpoint.

Now what

The carnage hasn't ended for Holley as its stock has kept falling in the days since its announcement. Shares are now trading at $5.82 per share, down another 27%, and although Holley had been in positive territory for the year through the end of July, it's now down 56% in 2022.

The significant deceleration in its business means its relatively cheap valuation may not be cheap enough. Although the stock goes for eight times next year's estimates, because Holley doesn't have good visibility on its business, there may be more air beneath its stock price.