Why Allot Communications Dropped a Lot

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 Allot Communications dropped a lot today, down by as much as 26%, after an analyst downgraded the stock.

So what: Oppenheimer cut its rating on Allot from outperform to perform, expressing a belief that the business was slowing down and that a fourth quarter miss could be in store for investors. The company may be facing headwinds in Europe and order activity may have weakened based on the analyst's checks.

Now what: Allot's book-to-bill may fall below 1, and the analyst expects sales to come in at $28.6 million with net income of $5 million. The consensus estimate calls for a top line of over $31 million in sales and a bottom-line profit of $5.5 million. Losing over 25% of its value on one analyst opinion may seem a bit excessive, but big swings are par for the course when you're talking about a small cap company valued at just $440 million and trading at over 36 times earnings.

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The article Why Allot Communications Dropped a Lot originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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 Motley Fool has a disclosure policy.

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