Market Moves on a Single Stock RVBD

Riverbed (RVBD) is a stock held by portfolio 5, one of the newer portfolios. In the news I noted that they slightly missed in their revenue guidance for 2012 and their stock value dropped by almost 30%.

This article at Motley Fool asks the question of how such a minor revenue drop drove such a major impact on the stock price.

Clearly the market doesn’t work in very precise ways, but honestly how does a $5M revenue cut in guidance lead to such a dramatic loss of market value? Maybe “fuzzy math” is at work.

Most investors probably saw that Riverbed Technology (RVBD) lost nearly 29% of its market value on Friday. The company reported basically in-line Q112 numbers. Not too bad at this point considering the major product transition going on. Then the wheels started falling off during the conference call. The CFO guided to revenue that at the high end would miss the $202M Q2 estimate by roughly $5M.

Yes, anybody doing the math is probably struggling to understand the stock plunge. It dropped 29% due to a 2% reduction in revenue. All while investors should’ve known that the company was going through a product transition that would muddy up the financials for the 1H of the year.

Since we don’t recommend specific stocks here and everyone should do their own homework I don’t make general recommendations. In the case of my portfolio stocks I watch them and try to assess whether this is a temporary event or a permanent loss of value. It has to be noted that any stock with a high multiple which means that their value is based on looking forward to years of earnings growth is subject to risk when they miss earnings by even a little bit because analysts then tend to “jump off the train”.

In this case after reviewing everything I am going to put the stock on “watch” to see if it comes back next quarter and if the analysts are right or if the stock just hit a minor transition.

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3 thoughts on “Market Moves on a Single Stock RVBD”

  1. If it does end up being a one off, the funds/managers getting out (which is what really moves the stock) could be creating a good opportunity to double down and reduce your cost basis.

    I do this all the time with my holdings that I know I will have forever – the best one I ever did was backing up the truck on McDonalds right after it plummeted due to the mad cow scare a few years ago. That lasted a quarter at best and the stock was right back up there and screaming forward very quickly.

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  2. I’m sure that you’ve done this on your cig stocks, as well. You probably own enough to start your own factory!

    Like

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