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.
What: Shares of SolarWinds (NYSE: SWI ) dropped 14% today as investors reacted to the company's acquisition plans.
So what: Yesterday, the company announced it will buy N-able, a cloud-based IT infrastructure company, for $120 million. This is expected to reduce 2013 earnings and there's no guarantee the acquisition will pay off, so investors sold off shares today.
Now what: BMO Capital Markets analyst Karl Keirstead predicted the acquisition will reduce earnings by $0.11 this year, a significant amount when you expect acquisitions to add to a company. The stock was already richly priced at 29 times 2013 estimates before trading started, so this only makes that multiple look worse. There's a lot of risk in this acquisition, and given the stock's steep price, I'm definitely not a buyer today.
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