Investors were selling off Commvault Systems (CVLT +0.00%) stock after the data and cybersecurity firm released its fiscal third-quarter earnings on Tuesday, Jan. 27. The stock was in free fall Tuesday, down some 33% to $86.80 per share, a 52-week low. The sell-off comes despite solid quarterly results, as the firm had record revenue and beat revenue and earnings estimates.
Revenue was up 19% year over year in the quarter to a record $314 million. About two-thirds of its revenue comes from subscriptions for its software, and that rose 30% to $206 million, while annual recurring revenue (ARR) from subscriptions jumped 28% to $941 million. The rest comes from its legacy revenue stream, licenses, which were up 22% to $119 million.
Earnings rose 60% to $0.40 per share, while adjusted earnings rose 24% to $1.24 per share.
It's not like investors were taking profits, as the stock had been down 18% over the past year prior to the sell-off. The share price is now down 45% over the past year, and 55% from its high of $196 in September.
It is more likely due to its high valuation and perhaps less-robust-than-anticipated outlook.
Image source: Getty Images.
Outlook not quite good enough?
While it was a pretty strong quarter, the revenue outlook came in lower than analysts estimated. For fiscal 2026, Commvault management is forecasting revenue of $1.177 billion to $1.118 billion, which would be up 21% to 22% over 2025. That's below the analysts' consensus estimate of $1.190 billion. Further, total ARR is expected to grow 18% in 2026, which is less than the 21% growth in fiscal 2025.
The outlook for growth rates for subscription revenue and ARR, while strong, were also lower than 2025. The non-GAAP (generally accepted accounting principles) EBIT operating margin outlook of 19.5% at the midpoint was also slightly below the 21.1% margin last fiscal year.
Overall, the outlook is certainly not bad by any stretch; it's just slightly below expectations.
Several analysts recently lowered their price targets for Commvault, based a lot on calls for compression in the software industry as a whole due to high valuations and slightly slowing growth, among other issues.
But still, Commvault stock, even with the price target downgrades, is viewed as an overwhelming buy by analysts, with a $177 median price target, which suggests a doubling of the current price.
NASDAQ: CVLT
Key Data Points
Is Commvault a buy on the dip?
I think the big issue, in addition to the slightly slower growth rates, is valuation. Commvault stock had still been trading at 74 times earnings before Tuesday's sell-off. That's very high for the slightly lower growth rates that were projected.
But after this massive sell-off, the stock price and price-to-earnings ratio should be at a much more reasonable level. I would not be shocked to see the stock rebound in the days ahead, with some investors buying the dip.
The issue is not so much the growth expectations as the valuation. But after this dip, investors might want to take another look.
