Why Datalink Shares Dropped

Why Datalink Shares Dropped

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 Datalink plunged 24% Wednesday after the data center infrastructure specialist reported disappointing third-quarter results.

So what: Quarterly revenue rose by 33% year over year to $139.6 million, which translated to adjusted earnings that fell almost 19% to $0.13 per diluted share. For reference, analysts were looking for $144.72 million in sales, and earnings of $0.24 per share on the same basis.

Now what: CEO Paul Lidsky weighed in to explain that "unexpected product shortages and delivery issues with one of [their] top storage partners contributed to a 6% revenue decline," which brought the company's third-quarter numbers in at the low end of its own guidance. However, Lidsky assured investors those orders still remain on the books and revenue will be recognized in the fourth quarter.

Even so, investors were surprised when the company chose to issue in-line fourth quarter guidance for revenue of $160 million to $170 million. What's more, Datalink also said adjusted earnings should come in between $0.24 and $0.30 per share next quarter, or well below expectations for non-GAAP earnings of $0.33 per share.

Still, with shares trading around 21 times last year's earnings and only nine times next year's estimates, today's pullback seems a bit of an overreaction. As a result, I think this could very well serve as a solid buying opportunity for patient long-term investors.

This stock should have no problem maintaining its growth...
The amount of data we store every year is growing by a mind-boggling 60% annually! To make sense of this trend and pick out a winner, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts but still has plenty of room left to run. To get instant access to the name of this company transforming the IT industry, click here -- it's free.

The article Why Datalink Shares Dropped originally appeared on Fool.com.

Fool contributor Steve Symington 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published