What happened
ScanSource (SCSC 0.17%) shareholders had a tough week. The stock dropped 11% through Thursday trading compared to a 0.7% slump in the wider market, according to data provided by S&P Global Market Intelligence. The decline pushed the cloud connectivity specialist's gains below the S&P 500's returns so far in 2023, though shares are still up roughly 5% since the start of the year.
This week's slump was sparked by ScanSource's updated earnings and sales outlooks.
So what
The company said in a Tuesday press release that sales rose 17% for the fiscal Q2 selling period that runs through late December. Gross profit margin fell slightly, but operating income was still strong, landing at $39 million and increasing 25% year over year. "The ScanSource team executed exceptionally well," CEO Mike Baur said in an SEC filing.
ScanSource raised its outlook for the rest of fiscal 2023, but apparently Wall Street wanted to see a more aggressive hike than the slight boost that management issued.
Now what
Revenue is now expected to rise by at least 6.5% this year, up from the prior goal of about 5.5%. Adjusted earnings received a similarly modest upgrade because the company sees room to increase earnings as it signs on more business in both its hardware and cloud services.
The new outlook still translates into much slower growth than investors have seen in recent months, and so Wall Street reacted with some disappointment. But shareholders can focus instead on the positive big-picture trends that include a growing customer portfolio, improving earnings, and increased market share.
Those factors will ultimately determine whether ScanSource stock beats the market over the long term, and they are pointing in the right direction here in early 2023. Its growth stock momentum seems intact, even as economic headwinds pressured IT budgets in late 2022.
