Why Shares of Quality Systems Cratered
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 healthcare technology-solutions provider Quality Systems (NAS: QSII) were looking quite ill today, as they fell as much as 36% in intraday trading after the company reported fiscal first-quarter earnings.
So what: As Quality Systems noted in its earnings release, the company notched "record revenue" during the quarter. That's just about where the good news ended. The record revenue of $118 million, an 18% increase from last year, was actually short of the $121 million that Wall Street analysts were looking for. Earnings fell 18% year over year, and slumped 19%, to $0.26, on a per-share basis. Wall Street had expected $0.35 in per-share profit.
The statement from CEO Steven Plochocki no doubt unsettled investors further. Though Plochocki noted confidence in the company's "future performance and prospects," he said that the company is not reaffirming its previous full-year outlook due to "evolving conditions affecting our industry and uncertainty in predicting future results."
Now what: As can easily be seen from the stock's plummet, Quality Systems' results were not well received. A Reuters article noted that Sterne Agee analyst Greg Bolan took his price target for the stock from $43 all the way down to $18.50.
But, if only weak results were the only thing Quality Systems had to tangle with. As the company struggles to maintain its competitive position in a tough field, it's also the subject of a bitter proxy battle. In the latest installment, Quality Systems board member and major shareholder Ahmed Hussein sent a letter to shareholders rebutting "personal attacks" that he believes the company has made against him in his efforts to restructure the board of directors.
Turmoil like this can sometimes be the hiding place for opportunity, but investors who are sniffing around Quality Systems will want to really dig in before jumping into the fray.
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