Why Shares In Kofax Limited Plummeted

Technology company Kofax Limited (LON: KFX) to miss earnings forecast.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 11 July, 2014 10:23 am BST

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares of Kofax (LSE: KFX) dived in early trade after the software provider revised down its full-year revenue and earnings guidance. Several deals, totalling approximately $6m, weren’t completed in the expected timeframe, and the revenue is expected to be collected when the deals are closed during the first and second quarters of fiscal year 2015. The share price tumbled 17% on news.

So what: The chief executive of Kofax, Reynolds C. Bish, said that he is “disappointed with these results”. Kofax reported revenue of $78.2m for the year ended June 2013, and offered a cautiously optimistic outlook for the following year, with revenue growth driven by new software licences. At the time the firm expressed that trading volatility was always going to be a risk.

Now what: The long-term financial model, based on low double-digit revenue growth, and an adjusted EBITDA margin of over 20%, remains unchanged. The board is “confident in our business strategy and future”. Shares in Kofax trade at 18 times forecast earnings and there is no dividend — the board, rather, would prefer to invest in growing the business.