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Surviving OCZ: More Than a Hard Drive Crash

OCZ Revenue ChartOCZ Revenue data by YCharts

OCZ blamed weak PC sales and competition for the quarter's poor power supplies sales and profit.

OCZ's CEO Ryan Petersen stated, for the first quarter:

It's important to note that our power supply business is experiencing significant headwinds in terms of both revenue and gross margins, as sales of desktop PCs which use these products continue to dwindle. As such, our power supply revenue and gross margin during the quarter were well below our expectations.

Insiders sold an abundance of shares in the previous six months. Insiders were not buying either, but with just over 8 million shares held by insiders, it's clear management does put their money into the company.

I like to see management's and investors' interests aligned. With OCZ, management owns over 12% of the company stock.

Micron

OCZ uses Micron Technology (MU) as a chip supplier. Reporting by either one can help investors get a better understanding on how the other may report.



Looking at Micron's chart it isn't a great surprise OCZ didn't light up the quarter, although the relationship is not totally linear.



MU ChartMU data by YCharts




Based on my experience with gap downs following earnings misses similar to OCZ, investors will see short-term lows as soon as Friday. OCZ lost money again this quarter, but revenue continues to grow in a computer market that is very soft.

Bargain hunters and short sellers covering positions could push the price up quickly in relation to the gap down price this week.

Looking at the chart, I expect short-term resistance near $5 and again at $5.25. Round numbers often attract like a price magnet and repel, causing a bounce. Expect a lot of volume to trade near $4.50 a share, but also be prepared for bargain hunters to start positions under $4.25 as an entry.

OCZ doesn't have debt (relative to the cash on hand) and the price-to-earnings multiple is not out of line for the growth rate and considering the amount of cash per share.

OCZ Earnings Per Share ChartOCZ Earnings Per Share data by YCharts

If you are looking for today's drop to signal a buying opportunity, you may wait until the end of this week.

There is no hurry jumping on board with OCZ. Stocks dumping as a result of misses like this one take time for sellers to rotate out of and buyers to find value. Watch for the second break above $5 as the one that "sticks."

OCZ competes against Intel (INTC), Seagate Technology PLC (STX) and Western Digital (WDC).

WDC ChartWDC data by YCharts

Intel shares have had a mixed reaction to Advanced Micro Devices' (AMD) poor earnings release this week. Read my Intel and AMD Surviving AMD in an Intel World.

Intel also reports after the closing bell on July 17. OCZ's statements about the weak PC market fall in line with other tech companies and offer clarity on what to expect from Intel. Intel makes some of the most expensive small form factor solid state drives for enterprise use. I use Intel SSD drives in my scanning computers.

INTC ChartINTC data by YCharts

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