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 Control4 (CTRL +0.00%) traded 17% lower on Friday after the home-automation specialist reported fourth-quarter earnings on Thursday afternoon. The company's results were mixed, but Control4 offered worrisome guidance for its upcoming fiscal first quarter.
So what: Control4 collected $41.2 million in revenue for the quarter, which was slightly weaker than the $41.9 million Wall Street analysts had sought. However, the company reported $0.21 in adjusted earnings per share, besting the consensus estimate of $0.19.
Control4's first-quarter guidance anticipates between $32 million and $35 million in revenue, which is well below the $38 million analysts had expected. Control4 also anticipates its adjusted bottom line to show anything from a $2 million loss to breakeven during the first quarter, which works out to a range of an EPS loss of $0.08 to zero EPS based on the company's outstanding share count. It's easy to see why the market reacted so poorly when you realize that Wall Street had expected a profit of $0.08 per share for the first quarter. The company expects full-year revenue to grow by anywhere from 16% to 20% over 2014's $148.8 million result, which works out to a top-line range of $172.6 million to $178.6 million, and which also compares somewhat unfavorably to Wall Street's expectation for $177.4 million in revenue for 2015.
Now what: Control4's shareholders are now sitting on a 38% loss for the past year. The company has been on the public markets for less than two years, and aside from a brief spike early in 2015 it has been largely a period of pain for anyone with a stake. However, Control4's full-year revenue projections seem to be an improvement over 2014's 16% year-over-year revenue growth.
A lack of near-term profitability is somewhat concerning, but Control4 has a history of spiky earnings. It is worth noting that the company's price-to-free cash flow ratio is 36.4, and its adjusted P/E is just 24.5. I wouldn't call Control4 a good buy just yet, but it can't keep falling forever if its fundamentals continue to improve over the long term. That has been the case for free cash flow, but earnings aren't quite there yet.
