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Why Constant Contact, Inc. Shares Crumbled

By Steve Symington – Jan 31, 2014 at 7:45PM

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Is Constant Contact's plunge meaingful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Constant Contact, (CTCT.DL) fell 13% Friday despite fourth-quarter results and forward guidance that came out ahead of expectations. 

So what: Quarterly revenue rose 13% to $74.9 million, which translated to 76% growth in non-GAAP net income, to $0.30 per share. By contrast, analysts were only looking for earnings of $0.27 per share on sales of $74.88 million.

In addition, Constant Contact issued guidance for 2014 sales to grow "more than 13%" -- which means sales of at least $322.5 million -- with adjusted earnings of $0.96 per share. Analysts were only modeling 2014 earnings of $0.94 per share on revenue of $321.43 million.

So what gives? With the the stock going into the report priced at a lofty 90 times last year's earnings, it looks like the market was hoping for an even bigger beat.

Now what: But it's also worth keeping in mind that shares look much more reasonably priced (though still aren't particularly cheap) at roughly 23 times next year's estimated earnings. As it stands, I'm personally not intrigued enough to pick up shares here given Constant Contact's sluggish top-line growth -- after all, it can't keep growing earnings at this rapid clip forever without at some point accelerating revenue growth. At the very least, investors might be wise to add Constant Contact to their watchlists to keep tabs on its progress.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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