Why BroadSoft Shares Slumped

Why BroadSoft Shares Slumped

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 BroadSoft plunged nearly 25% during intraday trading after the IP-based communications services specialist not only reported disappointing third quarter results, but also issued weak forward guidance.

So what: Quarterly revenue increased 7% year over year to $42.9 million, while non-GAAP net income fell 19% over the same period to $0.29 per share. For reference, analysts on average were looking for non-GAAP earnings of $0.30 per share on sales of $45.16 million.

In addition, BroadSoft said it expects fourth quarter revenue of $47 million to $53 million, with non-GAAP earnings of $0.34 to $0.49. Unfortunately, not even the high end either range met forward estimates, which called for adjusted earnings of $0.51 per share on sales of $54.85 million.

Now what: BroadSoft CFO Jim Tholen said: "We believe our longer-term outlook remains positive although we have some short-term concerns about the service provider spending environment in the fourth quarter. We continue to believe that we are very well-positioned to take advantage of the secular trend of enterprise communications moving to the cloud."

That's fair enough, but considering shares were trading at a premium of around 20 times next year's estimated earnings before today's plunge, it's hard to blame investors for taking a step back until BroadSoft can prove this weakness will be short-lived. At the same time, if that does turn out to be the case and with shares currently sitting at a much more reasonable 15 times next year's estimates, patient investors who take advantage of the pullback could stand to reap the rewards down the road.

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The article Why BroadSoft Shares Slumped originally appeared on Fool.com.

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Originally published