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Why Sierra Wireless Stock Dropped 18.9% in February

Steve Symington, The Motley Fool

What happened

Shares of Sierra Wireless (NASDAQ: SWIR) fell 18.9% in February, according to data from S&P Global Market Intelligence, after the Internet of Things company announced underwhelming fourth-quarter 2018 results and disappointing forward guidance.

To be sure, Sierra Wireless stock plummeted as much as 25% on Feb. 14, 2019, alone -- the first trading day after its report hit the wires -- before recouping a small fraction of those losses over the remainder of the month.

Time lapse of city roads with wirelessly interconnected points.

IMAGE SOURCE: GETTY IMAGES.

So what

That's not to say Sierra Wireless' quarter looked terrible at first glance. Revenue climbed 9.7% year over year to $201.4 million, translating to adjusted net income of $9 million, or $0.25 per share, down from $0.28 per share in the same year-ago period. However, both figures were near the low ends of Sierra Wireless' own financial guidance, which called for revenue of $200 million to $208 million, and adjusted earnings per share of $0.22 to $0.30.

Now what

Arguably more concerning for investors, however, was Sierra Wireless CEO Kent Thexton's warning that the company is enduring a difficult macroeconomic environment and "some weakness... in the automotive, enterprise networking and mobile computing markets." 

As such, Sierra Wireless told investors to expect revenue in the first quarter of 2019 to be in the range of $170 million to $174 million, down from $186.9 million a year earlier, with adjusted earnings per share of $0.02 to $0.06. Both ranges fell well short of analysts' consensus estimates for first-quarter earnings of $0.21 per share on revenue of $198.2 million.

Also of note, Sierra Wireless is undertaking a new cost-reduction program over the next 18 to 24 months -- a move that should maximize its profits and resources to continue developing innovative IoT solutions even as top-line growth languishes.

Nonetheless, it's hard to blame the market for reacting negatively to the news last month. 

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool has a disclosure policy.