Castlight Health Inc (NYSE:CSLT) stock cratered on Thursday, losing as much as 30% after revenue guidance for the first quarter and full-year fell far short of Wall Street’s expectations.
CSLT, a small-cap healthcare and IT stock, is now down more than 80% from its closing price on its IPO date last March.
CSLT Stock: Future Growth Disappoints
What exactly did the San Francisco-based Castlight do to justify such a precipitous drop today? Nothing — yet. CSLT actually logged $14.5 million in revenue in the fourth quarter of 2014, trumping consensus estimates by 10%. Quarterly earnings per share also surprised to the upside: CSLT stock only lost 17 cents per share versus a projected EPS loss of 22 cents.
Alas, the stock market is a cruel mistress who cares only what you can do for her tomorrow, not what Herculean tasks you’ve done for her in years past.
So when CSLT management guided for first-quarter revenue between $15.3 and $15.6 million, Wall Street drew offense — it had expected $16.1 million. And when Castlight projected full-year 2015 revenue between $74 million and $77 million (representing annual growth between 62% and 69%) investors cringed and began selling CSLT stock in droves.
The consensus estimate was for $81.2 million.
CSLT Stock: Great Idea, Horrible Valuation
As InvestorPlace IPO Playbook Editor Tom Taulli noted just before the CSLT stock IPO last March, Castlight’s business overlaps two super-sexy areas investors can’t get enough of:
“Castlight Health plays to a couple of huge megatrends: healthcare and Big Data. Castlight operates a platform that helps enterprises better manage their healthcare costs. At the core is a sophisticated Big Data system powered by a team of top-notch engineers, economists and clinicians that pulls from sources like healthcare providers, insurance companies and quality-monitoring organizations to detect trends and provides feedback on actions to take.”
Combine that with the cloud-based nature of the company, and CSLT stock looked prone to benefit from a triumvirate of trendy industries.
Investors immediately hopped aboard when CSLT stock went public. Even after raising its price range from the $9-$11 level to its eventual $16 per share IPO price, CSLT stock skyrocketed 145% higher on its first day of trading, closing near $40. The euphoria was part of the reason Taulli cautioned investors to “watch the Castlight IPO fireworks from the lawn.”
Although Castlight Health can count 45 Fortune 500 firms among its clients — Microsoft Corporation (NASDAQ:MSFT), Wal-Mart Stores, Inc. (NYSE:WMT) and Honeywell International Inc. (NYSE:HON) included — there’s little justification for its valuation. CSLT stock, trading at 13 times sales even after today’s fall, is pricey to say the least.
Moreover, CSLT remains unprofitable. It’s never been profitable, and analysts don’t expect it to be in the black in either 2015 or 2016.
Until CSLT starts making some dough — which could be 2018 or beyond at the rate things are going — count me out of this struggling stock.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
