Why Kornit Digital Ltd. Stock Just Crashed 20%

What happened

Bad news (for investors) out of Israel today: Kornit Digital (NASDAQ: KRNT), a maker of printers for printing designs on t-shirts and other apparel and an Amazon partner, just announced preliminary financial results for its fiscal third quarter -- and the numbers were disappointing. Sales for the quarter are likely to range between $27 million and $28.5 million, versus previous guidance for sales of $34 million to $38 million.

Kornit shares are plunging as a result -- down 20.1% as of 11:30 a.m. EDT.

So what

The 23% gap between what investors were expecting and what Kornit says it's likely to get this quarter certainly seems like reason enough for a sell-off. But what caused the shortfall?

Kornit is blaming "a single customer, who is unable to take delivery as scheduled of a large number of systems due to unforeseen protracted delays in the receipt of regulatory permits for their site, which postponed commencement of operations of a new facility intended for the systems."

Now what

So in other words, Kornit is saying "it's not our fault." But regardless of whose fault it is, the implications are not good. "As a result of the lower system revenue," warns Kornit, pro forma operating profit margin for the quarter will be no more than 5%, and may fall as low as 3% -- both numbers far below Kornit's previous guidance for pro forma profit margin of 13% to 17%.

The arguably worse news is that while Kornit's business may bounce back if its customer ultimately obtains the permits it's seeking, the company in question may not receive those permits -- and investors can't know which way things will play out. That introduces additional uncertainty into Kornit's prospects. Little wonder many investors are electing to call it a day and bail out of Kornit stock before any more bad news can surface.

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