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Why Liquidity Services Shares Spilled

Tuesday - 7/16/2013, 2:52pm  ET

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 online auction marketplace operator Liquidity Services sank 10% today after its preliminary quarterly results and full-year outlook disappointed Wall Street.

So what: The stock has been crushed over the past year on rapidly slowing growth, and today's third-quarter outlook -- EPS of $0.43-$0.45 versus previous guidance of $0.49-$0.54 -- coupled with downbeat sentiment for the full year only reinforces those worries. On the bright side, management expects operating margins to continue to expand, suggesting that the company's competitive position and ability to grow profitably remain intact.

Now what: On its earnings call on August 7, management expects to lower its full-year guidance for gross merchandise volume, adjusted EBITDA, and adjusted EPS. "Fundamentally, we are confident in our competitive position and our ability to achieve attractive organic growth over the next several years," said Chairman and CEO Bill Angrick. "However, in the short term, results have been less predictable and pressured due to significant integration efforts and the timing of new large programs coming on line in our retail supply chain vertical." More important, with the stock now off 50% from its 52-week highs and trading at a forward P/E of about 11, much of those short-term troubles might already be baked into the valuation.        

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