Why Shares of HollySys Automation Technologies Ltd. Imploded

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of HollySys Automation have fallen by 17% today, in what appears to be a delayed response to the Chinese industrial automation specialist's fiscal second-quarter earnings report released late last week.

So what: HollySys reported revenue of $130.3 million for the quarter, with adjusted earnings of $0.40 per share. Both top- and bottom-line results missed Wall Street's expectation for$137 million in revenue and $0.40 in EPS, and also fell 15% and 11% lower, respectively, than year-ago results. HollySys has not offered third-quarter guidance, but it continues to expect full-year revenue to range from $565 million to $600 million, which would result in adjusted net income of $94 million to $98 million. This range should provide adjusted EPS of $1.59 to $1.66, based on HollySys' current share count.

Now what: It's never a good sign when a company's top and bottom lines both fail to clear the year-ago quarter's results, but it's also worth pointing out that HollySys is still on track to surpassits fiscal 2014 revenue by at least 8%, and should do at least 7% better than last year's adjusted EPS. It should also be noted that HollySys' P/E ratio has now fallen to a 52-week low, and the stock is also about as affordable as it has been in the past two years. I'm not too excited about a company that expects to grow by low double digits over last year, but HollySys might be a good buy today if you believe its growth will accelerate in its next fiscal year.

The article Why Shares of HollySys Automation Technologies Ltd. Imploded originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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