Here's Why Extreme Networks, Inc. Stock Fell 24% Last Month

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What happened

Shares of Extreme Networks (NASDAQ: EXTR) fell 24.1% in February, according to data from S&P Global Market Intelligence. The maker of enterprise networking equipment failed to impress investors with a mixed second-quarter report.

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So what

In the second quarter, Extreme Networks' revenue rose 56% year over year to $231 million. A series of plug-in buyouts throughout 2017 played a big part in this surge, but your average analyst had been looking for $236 million.

Further down the income statement, adjusted earnings grew 17% larger at $0.14 per share. Here, the Street would have settled for $0.13 per share.

You can't blame Extreme's next-quarter guidance for the market slump, since both earnings and revenue targets for the third quarter were slightly above the prevailing Street views. So it's a clear-cut case of investors focusing on the revenue miss to the exclusion of many positive metrics.

Share prices plunged more than 14% the day after these results were published.

Now what

Mind you, Extreme Networks shares had more than doubled over the 52 weeks leading up to this report, so a quick correction may have been in order. There was really nothing terribly wrong with this report, as the company actually turned away significant amounts of low-margin deals to focus on more profitable sales. This approach can hurt the top line, but is actually a smart and sustainable way to run your business with the long game in mind.

Shares have started to recover a bit, rising 8% in the first week of March. This is a fast-growing and well-managed business whose stock is trading at less than 10 times forward earnings. In my book, that's at least worthy of a deeper look from value-conscious investors.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.