Why Procera Networks (PKT) Stock Plunged to a One-Year Low Today

NEW YORK (TheStreet) -- Shares of Procera Networks  (PKT) plummeted more than 34% to a 52-week low of $5.61 in afternoon trading Friday, after the company announced its preliminary third-quarter results and issued full-year guidance after the market closed on Thursday.

Procera now forecasts third-quarter revenue of $16 million, an approximately 25% year-over-year decrease. The company also anticipates an adjusted net loss for both the third quarter and full year.

For the fiscal year, Procera anticipates revenue in the range of $70 million to $75 million, compared to $74.7 million for the fiscal year 2013.

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Analysts expect earnings of 5 cents a share on revenue of $22.64 million for the third quarter, and earnings of a penny a share on revenue of $85.16 million for the full year.

More than 2.1 million shares had changed hands as of 12:59 p.m., nearly 10 times the average volume of 216,637.

Separately, TheStreet Ratings team rates PROCERA NETWORKS INC as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate PROCERA NETWORKS INC (PKT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.3%. Since the same quarter one year prior, revenues rose by 15.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • PKT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.56, which clearly demonstrates the ability to cover short-term cash needs.
  • PROCERA NETWORKS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PROCERA NETWORKS INC swung to a loss, reporting -$0.81 versus $0.28 in the prior year. This year, the market expects an improvement in earnings ($0.01 versus -$0.81).
  • PKT's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.99%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Communications Equipment industry and the overall market, PROCERA NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: PKT Ratings Report

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