NetApp Shares Dropped: 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: Shares of data storage equipment specialist NetApp (NAS: NTAP) sank 11% on Thursday after its quarterly revenue and guidance disappointed Wall Street.

So what: NetApp's second-quarter earnings managed to top estimates, but a miss on the top line -- $1.55 billion versus the consensus of $1.55 billion -- seems to be triggering fears of an even bigger than expected drop in demand. In fact, the shares are flirting with a new 52-week low and are down roughly 40% in 2011.

Now what: Management now sees third-quarter EPS of $0.56-$0.60 on revenue of $1.52-$1.61 billion, while Wall Street had been forecasting EPS of $0.63 on revenue of $1.65 billion. "In general we go through periods of good news followed by bad news," Chairman and CEO Tom Georgens said. "I can't say we're on a steady trajectory up." Of course, as long as investors are willing to put up with choppy demand and, in turn, a volatile stock price, NetApp's PEG ratio of less than one -- now in line with that of rivals EMC (NYS: EMC) and Hewlett-Packard (NYS: HPQ) -- might be worth pouncing on.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of EMC. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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