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Why 21Vianet Group Inc Shares Plunged Today

By Steve Symington - Mar 7, 2014 at 4:19PM

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Is 21Vianet's drop 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 21Vianet Group Inc ( VNET 2.98% ) fell more than 10% early Friday, then recovered to close down around 3.6% after the China-based Internet data center services provider reported better-than-expected fourth-quarter results, but followed with disappointing forward revenue guidance.

So what: Quarterly revenue rose 30.6% year over year, to $90.2 million, which translated to adjusted earnings of $0.10 per diluted American depositary share. Both figures beat analysts' expectations, which called for earnings of $0.07 per share on sales of $88.77 million.

For the current quarter, however, 21Vianet expects revenue in the range of $95 million to $98 million. For the full year 2014, the company sees revenue of $448 million and $471 million. The midpoints of both ranges fall just below analysts' expectations for first quarter and full year 2014 sales of $95.68 million and $451.9 million, respectively.

Now what: The stock isn't exactly cheap trading around five times last year's sales, and 27 times this year's expected earnings. On one hand, though, it also seems a reasonable premium given 21Vianet's growth, and its top line guidance miss wasn't all that far off the mark. On the other hand, it's not cheap enough to compel me to want to buy, which explains why shares recovered into the close, but just couldn't make it into the green today.

In the end, I'm perfectly happy watching 21Vianet from the sidelines. If the stock happens to extend its losses during the next few months -- and barring any significant negative developments -- only then might I consider opening a long-term position.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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