Penny Stocks On The Move: STEC (STEC)
Missing earnings can be hard on the price of a stock. When a company reports lower than expected profits, investors often head for the exits.
But while missed earnings can wound a stock, lowered guidance is a death blow.
One of the worst things a company can do, in terms of their share price, is lower their profit projections. Not only does it announce to the public that business is decreasing, it also means things arent going to get better anytime soon.
No wonder investors flee those companies in droves.
And thats exactly whats happening this week to STEC (STEC).
STEC produces solid-state drives (SSD) used in high performance storage and server systems. Essentially, SSDs are substitutes for standard hard drives. They both are used for data storage, but SSDs have no moving parts.
While SSDs have several benefits over hard drives, theyre also more expensive. Or at least they used to be more expensive. New technology is helping to drive down the price of SSDs.
Heres the problem
STEC isnt one of those companies utilizing the new technology. In other words, theyre getting creamed by their competitions cheaper SSDs.
Take a look at these numbers on second thought, you may want to look away from this next part its pretty brutal.
STECs second quarter EPS came in at $0.23. Consensus estimates had the EPS at $0.24. Okay, thats not so bad. But wait until you see the third quarter guidance.
Management is now calling for next quarters EPS to fall to $0.08-$0.10. And revenues are projected to drop to $70-$72 million. So whys that such a big deal? Because initial projections called for EPS to come in at $0.31 and revenues at $96 million.
Thats not just lowering guidance, its obliterating it.
Make no mistake, STEC is going to have a hard time attracting investors after this kind of news. And of course, many of their shareholders have already bolted for the hills.
Just this week, the share price has plunged 43%. And its down nearly 63% from the 52-week highs.
Heres the thing
Sometimes, Ill recommend purchasing penny stocks whose price has dropped so much in a short period. Bargain hunting can be a good way to earn big returns.
But not this time.
I would stay far away from these shares if I were you. STEC is getting destroyed by the competition. And theres very little reason to hope for a quick turnaround. Bottom line your investment capital will be better served elsewhere.
Category: Penny Stocks On The Move, Technology Stocks
