Please ensure Javascript is enabled for purposes of website accessibility

Why Gigamon, Inc. Shares Dropped, Then Recovered

By Steve Symington – Feb 5, 2014 at 8:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is Gigamon's plunge meaningful? 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 Gigamon (GIMO) plunged more than 10% early Wednesday, then recovered to close down just 1.3%, despite turning in better-than-expected fourth quarter results and solid forward guidance.

So what: Quarterly sales came in at $43.1 million, which translated to adjusted earnings of $0.18 per diluted share. By contrast, analysts were only looking for earnings of $0.12 per share on sales of $41.9 million.

For the current quarter, however, Gigamon expects a breakeven quarter on revenue of $34 million to $35 million. Analysts, for their part, were looking for looking for breakeven results on sales of $33.43 million.

Now what: Given industry peer F5 Networks' pop two weeks ago, investors were likely hoping for an even bigger beat and higher guidance from Gigamon.

But to be fair, Gigamon stock did jump more than 10% to end last week after a Goldman Sachs upgrade in anticipation of today's results. As it stands, investors should be pleased shares have actually risen slightly from Friday's close, even despite a broader market pullback.

The stock does look pricey today trading at 34 times next year's estimated earnings, but keep in mind that Gigamon should continue to benefit from improving U.S. enterprise spending going forward. While I'm not particularly compelled to buy today, at the very least I think investors would be wise to add Gigamon to their watchlists.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and owns shares of F5 Networks. We Fools don't 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.

Stocks Mentioned

Gigamon Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.