Among the biggest losers in Friday's early trading are
InfoBlox (Nasdaq: BLOX)
Mattress Firm Holdings (Nasdaq: MFRM)
Whenever a company says its plans to ramp up internal spending to
meet future growth plans, it canmean one of two things. First, it
might signal that core organic growth is getting harder to come by
and sales will sharply slow if the company doesn't step on the gas
in terms of spending. That's a stock to avoid. The second kind is
better: that's when a company is spending more now because
themarket opportunity is so robust, that more sales people and
engineers are needed to grab all the low-hanging fruit.
That appears to be the case with recentIPO
, which told investors Thursday evening, Sept. 6, that a ramp-up in
headcount will cause expenses to be a bit higher than analysts had
previously anticipated. Myopic investors are pushing the stock down
about 16% this morning.
That's short-sighted. After all, Infoblox has quickly emerged as
one of the leading architects of cloud-based computing, or the use
of computing resources delivered as a service over a network -- one
of a number of growing trends from which Infoblox is "well levered"
to benefit, UBS suggests.
The analyst community is relatively accepting of the move to hike
spending -- despite the negative share-price reaction. "We feel the
company is growing increasingly critical to the adoption of
cloud technologies and we view the investments favorably, as
they should help to position Infoblox as a core provider in the
build-out of cloud infrastructure," note analysts at JMP
Both of these analysts have $25 price targets -- only 20% or so
above the current level -- but those are based on near-term sales
andprofit forecasts. Yet if you're looking for high-growth
opportunities and have a multi-year time horizon, then today's
sell-off looks like a nice entry point with the possibility of much
sharper upside than those price targets imply.
Does anyone still need a fancy mattress?
Whenever an industry is growing rapidly, analysts tend to simply
model continued strong growth into subsequent years. Yet as we've
often seen, an industry can only grow quickly until demand is
saturated. In the case of mattress makers, that saturation point
came a lot sooner than anyone expected.
The seemingly boring mattress sector grew exciting in recent years
as key players embarked upon an arms race to see who couldoffer the
most comfortable, and expensive, mattresses. Apparently, the market
for high-end (and very profitable) mattresses is more limited than
anyone knew. Investors found this out when
announced a huge quarterly shortfall in early June, sending
itsshares down by half in one day.
Since then, we've heard of other firms speaking of similar
slowdowns, so it's no surprise that
Mattress Firm Holdings
tacitly noted on Thursday evening that organic sales growth in the
quarters ahead won't be as robust as some had been
anticipating. For example, while analysts are expecting $274
million in sales in the current quarter, the company anticipates
sales in the $270 million to $275 million range. Not so bad, until
you realize that the company just completed anacquisition that
should add to sales (later) in the current quarter. Translation:
without this deal, third-quarter sales would be $5 million to $10
million below what analysts had been looking for -- which helps
explain why shares are falling more than 3% this morning.
What the market giveth...
honeymoon was surely short-lived.
Only a week ago
, I was mentioning this music streaming firm's impressive 17%
Well, news that
Apple (Nasdaq: AAPL)
may look to deliver a similar competing music streaming service is
predictably being seen as very bad news, pushing shares right back
down to $10.75. Will Apple make the move? It doesn't matter. Simply
the mere possibility of such a development will dog shares of
Pandora until and unless Apple explicitly states that it won't make
such a move. And Apple never talks about its future plans.
Will Apple simply look to make a quick splash in the space by
buying Pandora? That seems unlikely, though it could lead a rival
Google (Nasdaq: GOOG)
to make such a move. That's too speculative a reason to own this
stock, and you shouldn't look for an imminent rebound.
Action to Take -->
Of these three stocks, only Infoblox looks to possess robust
growth prospects. But shares aren't a bargain based on near-term
metrics, so you need to own this stock with an eye on the long-term
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of GOOG in one or more if its "real money" portfolios.