VDSI Plummets 29% on Earnings Report
One of my best-performing Llamafolio stocks is no longer doing well – VDSI is officially in the crapper. On April 23th the closing price was $13.83 per share. April 24th, the opening price was $11.50, and closing was $10.36. As I write this, the stock sits at $9.80 with no bottom apparent. That’s roughly a 29% drop in just two days – not exactly insignificant. What in the world happened?
A huge overreaction
On April 24th, before the markets opened, VASCO Data Security International, Inc reported their first quarter results. How did it look? Well, not as bad as the market took it, if you ask me. Net income dropped from $4.96 million last year to $4.90 million this year ( in the first quarter ). Sure, a drop is never good – but this is a tough economy, and that’s a tiny drop. About 1.2% to be exact. Revenue increased 10% from $26.41 million to $28.93 million. A 10% increase is bad, but only when Wall Street is expecting a 23% jump.
The future looks pretty good
Despite the small setback, I think VDSI is going to move forward quite nicely. Once Wall Street gets over themselves and stops overreacting, VDSI should move back up nicely. They launched several new products in Q1 2008, so their sales team will be working hard.
I won’t sell anytime soon
I bought VDSI at $11.44 per share. That means I’m down quite a bit right now – and no one likes losing money more than I do. However, I think the fundamentals of the company are strong. The huge drop in share price is simply an overreaction that should blow over. I’m expecting it to head back up into the $13-$14 range before too long. If I can find some extra cash, I may even pick up a couple more shares to bring my average cost down.
Remember, investing takes nerves of steel. I have them – do you?
April 25th, 2008 at 4:29 pm
Morgan Keegan’s Brian Freed downgraded the company to “Market Perform” from “Outperform.” He noted it was Vasco’s fourth straight quarter of slowing revenue growth.
“We believe the lackluster year-over-year revenue growth combined with management’s reaffirmation of full-year revenue and margin targets will drive a continued crisis of confidence among Vasco investors and increase the potential for further downward revisions given the aggressive ramp required in the second half to meet management guidance,” Freed wrote in a client note.
Separately, Brean Murray Carret & Co. analyst Andrey Glukhov noted that favorable currency exchange rates added $2 million to Vasco’s revenue in the quarter. “In other words year-over-year revenue growth was almost entirely a function of the currency gain,” he wrote.
Glukhov also said it was unlikely Vasco could meet its guidance, as the company’s year-over-year sales growth would have to accelerate to at least 55 percent by the fourth quarter.
April 25th, 2008 at 6:04 pm
The currency exchange rates item is interesting – I wouldn’t have thought of that. Even still I guess I’ll have to go against the grain. I don’t see the year ending and VDSI sitting under $13. I’d even be surprised if it finished under $13. Wait and see, right? The experts vs little old me