As we've all come to expect, companies that warn on sales typically get taken out back to the stock market's woodshed for a thorough sell-off. In contrast, however, Group 1 Software's
For one, the warning was mild in nature, and it comes in what is widely known to be Group 1's weakest quarter of the year. First-quarter revenue growth is now projected to be only 1.5%, well below the 10% to 12% growth outlook for the full year. As bad as that sounds on the surface, the revenue shortfall was due to a reasonably justifiable timing issue on some sales that came in soon after the quarter's end. Also softening the blow is the fact that first-quarter EPS growth will be quite strong at 57% to 88%, in line with one public analyst estimate.
In addition, today's mild stock decline may be a sign that any potential sellers have already been shaken out. After hitting a 52-week high of $23.30 on June 4, Group 1 has been drifting down pretty steadily. At today's price of around $17.70, the stock is already 24% off its highs. After selling off that far, today's news may not have justified much further selling.
This is especially true considering Group 1's reasonable valuation. At $17.70, Group 1 trades for a very reasonable 16 times trailing free cash flow. And with today's reaffirmation of 10% to 12% sales growth for the coming year, the current price looks, if anything, to be on the undervalued side.
At time of publication, Matt Richey was long on Group 1 Software.