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5 Things Pushing Down Sierra Wireless Stock Over the Past 5 Months

By Chris Neiger - Mar 15, 2016 at 10:00AM

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Missed guidance, delayed orders, and macro headwinds all contributed to Sierra's drop.

Image source: Sierra Wireless.

Sierra Wireless' (SWIR -0.97%) wild ride has likely left its investors feeling a bit sick lately. The company's stock price has plummeted more than 40% over the past five months, and there's a handful of reasons investors have been unhappy with the stock.

Let's take a look at five things that have come up over the past few months for the company.

Missed guidance and slowing revenue growth
Sierra reported results that spooked investors in Q3 2015, even though they weren't all that bad. Most notable was the fact that revenue and earnings fell below management's guidance for the first time in a year. 

Sierra Wireless CEO Jason Cohenour said at the time that, "While our Q3 results were solid, revenue was slightly below our expectations, as demand for 4G enabled enterprise notebooks encountered temporary headwinds as the industry transitions to a new processor platform."

And that contributed to slowing revenue growth for the company's important OEM Solutions segment, which helped push the company's stock price down about 30% this past November.

Automotive customers changed course
To make matters worse, Sierra's automotive clients adjusted the timing of some of their orders toward the end of the year. That hurt some of Sierra's revenues and came as the company had some problems with radio frequency (RF) chips supplies. 

"The sequential decline from Q3 is principally a function of the short-term effect of order timing from a large automotive customer," Sierra's CFO Dave McLennan said at the end Q3.

The company says the RF chip problems have been resolved, but that reassurance came too late for the company's revenues -- and its investors. 

The global economy
When the company reported Q4 2015 earnings, Sierra Wireless mentioned the broader global economy as a contributing factor. Total revenue fell 2.8% year over year, OEM Solutions revenue fell once again, this time by 6.2%, and enterprise revenue fell by 15% year over year.

Cohenour said, "In the fourth quarter of 2015, our revenue was slightly below expectations, as we experienced softer demand at select OEM customers. We believe this reflects increased caution on the part of some customers in the face of an uncertain macro-economic environment."

That perpetuated investors' uncertainty about the stock as well. 

Missing guidance, again
Aside from the global economy, investors didn't like to see Sierra Wireless' management miss guidance, and they certainly didn't like to see it happen two quarters in a row. 

In the last two quarters of 2015, Sierra failed to meet management's own guidance, and that was just too much for investors to stomach. After its Q4 2015 miss, the company's stock price tumbled 24% the very next day.

Overly aggressive 2016 estimates
Some investors may not have liked the company's forward-looking estimates for 2016, either. Sierra projects full-year revenue of about $650 million despite its Q1 2016 revenue estimates of about $140 million.

As fellow Fool Jim Mueller pointed out in one of our premium newsletters, the company would need to average nearly 10% sequential revenue growth to hit its goal, which it hasn't achieved in the past four years.

It may not be all bad news for Sierra's stock going forward. Sierra's management remains optimistic about its OEM and Enterprise Solutions revenue growth, but you can't fault investors for being a bit skeptical at this point. 

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