Tdc Live And Breathe Data


Image source: Teradata.

What: Shares of Teradata (NYSE:TDC) gained more than 14% on Friday, nearly erasing Thursday's equally stunning price drop.

So what: Thursday's plunge came from Teradata's third-quarter report, which included a 5% cut to full-year revenue guidance and 10% lower earnings. The price drop also brought Teradata shares to territory not seen since 2009.

A lot of investors are jumping in to take advantage of these historically low buy-in prices -- Teradata's trading volume is on pace to triple your average Friday session -- so the very deepest rebate turned out to be short-lived.

Now what: In other words, Thursday's 15% drop was a knee-jerk overreaction to a slight earnings disappointment, and Friday's action is a simple correction. It is, of course, entirely possible that Friday's positive move is going too far as well. Analyst firm BMO Capital would agree with that view, for example.

Thursday night, the firm cut its price target on the big data analysis expert from $34 to $25, pointing out that both revenue and profit margins have been swooning for several quarters now.

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.

But the market pushed BMO's report aside to focus on the low share price for a storied business. As of Thursday night, Teradata shares were selling for just 11 times trailing free cash flows, which also hasn't happened since 2009.

As recently as last April, that ratio had been hovering near 16 times FCF for a couple of years, and data analysis rivals Splunk (NASDAQ: SPLK) and Tableau Software (NYSE: DATA) trade at price-to-free cash ratios of 73 and 113, respectively. There's nothing inherently wrong with Splunk and Tableau, but they can't match Teradata as a pure value play.

So some investors gave up on Teradata this week, and others are placing fresh bets at seemingly attractive prices. Who's right? We'll just have to wait and see.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Splunk. The Motley Fool recommends Teradata. 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. The Motley Fool has a disclosure policy.