Why SolarWinds Shares Plunged

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 network management software maker SolarWinds dropped 15% today after the company released earnings.

So what: Revenue jumped 22% to $72.9 million and adjusted earnings per share came in at $0.30 per share in the first quarter. The problem is that analysts expected revenue of $75.6 million and earnings per share of $0.37. To make matters worse, management said it expects second-quarter revenue of $77.8 million to $78.8 million and earnings of $0.37 to $0.38 per share, both lower than expected.

Now what: The stock's forward P/E ratio is 23, indicating that investors are expecting a lot of growth in 2013. If the company doesn't grow as expected, the stock can be crushed quickly, like it was today. Just based on price I don't think the stock is a great buy today, although I'd revisit this if the stock continues to move lower in coming weeks, because the company is still growing at a rapid rate.

Interested in more info on SolarWinds? Add it to your watchlist by clicking here.

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The article Why SolarWinds Shares Plunged originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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