Sykes Sank: What You Need to Know


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: Markets turned green 'most everywhere today. Most everywhere, that is, except for at Sykes Enterprises (NAS: SYKE) , down 24% by close of trading Tuesday.

So what: Which is kind of strange, when you consider that this provider of "customer contact management solutions" actually turned in a pretty good earnings report last night. Sales were up 7% year over year, and with operating margins rising by nearly half to 4.9%, Sykes turned in a near-triple in net profit on the bottom line -- $0.26 per share.

Now what: Now here's the bad news. Looking forward, Sykes says things are about to get a whole lot tougher. "Sluggish demand forecasts from clients," says Sykes, require management to roll back projected revenues and earnings for both Q3 and the fiscal year as a whole. When all's said and done, Sykes expects to earn just $0.99 to $1.04 per share this year -- that's a whole lot less than the $1.49 per share Wall Street had the company pegged for, and more than sufficient to explain the stock's 24% drop.

With a 47 P/E on the stock but only a 12.5% long-term growth rate -- a growth rate that now turns out to have been overly optimistic -- I can't blame investors for feeling pretty sick of Sykes today.

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At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any stock named above. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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