Three months ago, I told you to keep your bargain-hunting hands off Xyratex (Nasdaq: XRTX) for another quarter or two. Western Digital's (NYSE: WDC) purchase of the storage division off of Hitachi (Nasdaq: HIT) raised industry issues that would take some time to work out. Xyratex's cost-cutting efforts and share repurchases would also require some patience before paying dividends.

So far, that's been good advice. The thinly traded small cap has moved in fits and starts for three months, arriving at yet another underwhelming earnings report. Opportunistic investors could have snagged shares at as much as a 7% discount along the way, and at no point have Xyratex shares threatened to rise above the prices seen before its disastrous second-quarter report.

The British maker of storage-system and hard-drive components saw second-quarter sales slip 26% year over year to $339 million, producing a $0.06 non-GAAP loss per share. Gross margins fell once again, suggesting manufacturing inefficiencies and pricing pressures. "The markets we serve remain highly competitive and uncertain," said CFO Richard Pearce. That's hardly a sign of a turnaround story going gangbusters.

So the buy-in window remains open for at least another quarter. Pending reports from heavy-hitter Xyratex customers Western Digital, Seagate Technology (Nasdaq: STX), EMC (NYSE: EMC), and NetApp (Nasdaq: NTAP), this is not the time to go bullish on this stock.

Just add Xyratex and a few of its customers to your Foolish watchlist, and bide your time. Keeping your eyes and your options open in search of a stronger storage market will boost your returns and limit your risk.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of EMC and Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.