Why Entropic's Shares Fell Into Disorder

Before you go, we thought you'd like these...
Before you go close icon

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 Entropic Communications (NAS: ENTR) got hammered this morning, falling nearly 15% before settling into a 12% loss as of this writing. The source of the drop appears to be mediocre forward guidance, as the company bested both top- and bottom-line expectations for the current quarter.

So what: Entropic CFO David Lyle offered fourth-quarter guidance in the company's earnings call of $89 million to $92 million in revenue, with adjusted EPS coming in at about $0.08. Analysts had expected an average of $92.8 million in revenue and $0.09 in EPS, so Entropic's own estimates are a bit disappointing. The fourth-quarter projections represent very modest growth over the third quarter's results of $89.8 million in revenue, but a decline in EPS from the current $0.09 result.


Now what: These flat projections don't offer much promise for shareholders that have watched Entropic's P/E shoot up from 2011 to the present day as earnings and free cash flow have begun to decline. A potential gross margin decline in 2013 is also cause for concern, as Entropic's revenue has seemingly stalled out this year, and a changing product mix may depress aggregate growth over the coming year. At a P/E near 40, Entropic doesn't have a lot of room for error, and this guidance looks like an error the market isn't willing to deal with in the short term.

Want more news and updates? Add Entropic Communications to your Watchlist now.

The article Why Entropic's Shares Fell Into Disorder originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners