Data storage company Datalink (NASDAQ:DTLK) has seen its stock price rally since July, doubling from $6 to $12. But yesterday, the stock plunged 18.5% to $10.04 on its third-quarter earnings news. While the company continues to grow, this time, there wasn't enough growth to meet investors' optimistic expectations.
In the third quarter, sales increased 6% to $33.2 million. Net income was $1.3 million, or $0.11 per share, up from last year's net income of $295,000, or $0.03 per share. In terms of guidance, Datalink expects revenues of $36 million to $40 million in the fourth quarter, as well as net income of $0.11 to $0.16 per share.
Datalink is a high-end consulting firm; the company refers to itself as an "independent information storage architect." This may sound like mostly tech mumbo-jumbo, but Datalink provides much-needed services to customers by helping with things like analysis, design, implementation, and support of storage infrastructures. Its services protect against data failures, allow for data recovery in the event of a disaster, and manage storage technology more efficiently. As a result, the company works with a myriad of technology providers, such as EMC (NYSE:EMC), Sun (NASDAQ:SUNW), Symantec (NASDAQ:SYMC), and Cisco (NASDAQ:CSCO).
The storage market remains strong, at more than $36 billion. IDC projects that it will grow at 8% to 10% through 2007. In addition, companies have stringent regulatory requirements regarding their data -- from the likes of Sarbanes-Oxley and HIPAA -- and a desire to get more value out of their data by cross-selling customers and providing better customer care.
But its large contract values can make revenues volatile for Datalink -- witness August's weak numbers. The good news: The fourth quarter tends to be strong, as customers gear up for end-of-the-year budgeting, and it appears that some of Datalink's sales will be pushed into the fourth quarter.
More importantly, the company is still positioned nicely for the long run. So while the stock may tread water for a while (which seems to usually happen after a plunge), this is certainly one to keep an eye on going into 2007.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
