Investors are losing faith in Allot Communications Ltd.
The Israeli maker of technology used to track wireless traffic tumbled 8.1 percent in New York Tuesday to $8.02, the lowest since 2010, after first-quarter revenue missed estimates. Barclays Plc cut its rating to the equivalent of sell from hold after the earnings report, citing a slowdown in the company’s core business, while Wunderlich Securities Inc. lowered its price target to $12 from $16.
Allot, which got about half its revenue from Europe, the Middle East, and Africa in 2014, has been battered by a 19 percent rout in the euro over the past year. At the same time, technological changes in the telecommunications industry are slowing demand for its core business, which lets carriers like Vodafone Group Plc and AT&T Inc. sort network traffic.
“The trouble is that it’s slowing decision making, and it’s slowing the overall demand for the gear,” Alex Henderson, an analyst with Needham & Co. in New York, said by phone. “It’s a seasonally weak quarter and a lot of that has to do with the fact that Europe was so ugly, but at the end of the day it makes people quite nervous.”
Allot shares have plunged 39 percent in the past year through Tuesday, compared with an 11 percent gain on a Bloomberg index of the most-traded Israeli stocks in the U.S. Six out of 10 analysts have a neutral or sell rating on the shares, compared with three a year ago, according to data compiled by Bloomberg.
Hod Haharon, Israel-based Allot’s first-quarter revenue rose 4.4 percent from a year ago to $29.5 million, compared with the $30.1 million estimate of five analysts. Investors were also concerned that Allot’s first quarter book-to-bill ratio, or the ratio of booked orders to current revenue, was below one for the first time in nine quarters, a sign of weak demand, Henderson said.
The company didn’t respond to an e-mailed request for comment sent after regular business hours in Israel.
Allot is still growing by offering value-added services that allow carriers to charge customers extra for special services, like blocking children from seeing pornography via a home Internet connection, the Needham analyst said.
It also completed an acquisition in the first quarter to bolster its cybersecurity offerings to customers, another source of growth, Chief Executive Officer Andrei Elefant told investors on a May 5 earnings call.
The stock was the second-biggest decliner on the Bloomberg Israel-US Equity Index, which slipped 1.3 percent on Tuesday. The shares lost 2.1 percent to $7.85 at 10:49 a.m. in New York on Wednesday, bringing it’s two-day decline to 10 percent.
“Allot is a company in transition,” Barclays analyst Joseph Wolf wrote in a May 5 note downgrading the shares to underweight. The company’s “bias towards limited transparency and guidance during the transition push us to the sidelines.”