Shares of data protection specialist Commvault Systems (CVLT 31.10%) tumbled on Tuesday. On the heels of a strong earnings report with uninspiring next-quarter guidance, the stock fell as much as 34.7% in the morning session. As of 3 p.m. ET, Commvault had recovered slightly to a 31.8% drop.
NASDAQ: CVLT
Key Data Points
Great quarter, disappointing outlook
Commvault's third-quarter sales rose 19% year over year, landing at $314 million. The average analyst had expected roughly $299 million. On the bottom line, adjusted earnings rose 24% to $1.17 per diluted share. Here, the Street consensus was $0.98.
Management's revenue target for the fourth quarter was in line with the current analyst consensus near $306 million. That's not good enough to support a stock trading at 73 times trailing earnings on Monday afternoon, just before the report. Simply put, investors expected better near-term growth prospects.
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Is this a buying opportunity or a warning sign?
The company is actually doing a lot of things right. Commvault's rapid revenue growth sprung from 30% higher subscription sales, building a transparent and robust revenue stream for the long haul.
The modest next-period revenue guidance could be an issue, since it also includes slower growth projections in the subscription-based revenue basket. At the same time, management has accelerated Commvault's share buybacks, sending confident signals about a potentially undervalued stock.
So it's a mixed signal, and Wall Street reacted with a quick price correction. Commvault's stock remains pricey after this vertigo-inspiring price drop, trading at 50 times earnings today. If you were looking for a price drop before taking action on this backup and data protection bet, today might be that invitation. Just be prepared for continued volatility. Despite strong recurring sales, Commvault is a fairly small company in a data security industry packed with giants, and its results can be jumpy.
