PairGain Shares Tumble 18.3% in Heavy Trading
TUSTIN — Shares of PairGain Technologies Inc. plunged to a 13-month low Friday after an analyst--who likes the stock--said in a report that the company’s annual revenue could fall because of price cutting in the telecommunications equipment industry.
The manufacturer’s shares fell $3.875 to $17.25, an 18.3% decline, in wild trading that made it the nation’s most active stock Friday. A total of 19.1 million shares of PairGain common stock changed hands in the Nasdaq market.
Analyst Chandan Sarkar of SoundView Financial Group in Connecticut said he was perplexed by the reaction to his report.
Charles McBrayer, PairGain’s chief financial officer, blamed the heavy trading and slumping stock price on “people who are trading on second- and third- and fourth-hand information.â€
The company, which makes products that improve the quality and speed of data transmission over standard copper telephone wires, is facing increased competition and a round of price cuts that are steeper than usual in the industry, Sarkar said in his report.
But while his self-described “caution flag†sent investors into a selling frenzy, Sarkar says he continues to recommend PairGain as a stock to buy.
At least one other analyst agrees.
“The price it is at right now is too low a price for PairGain,†said Charles Pluckhahn, an analyst at Dain Bosworth Inc.’s Seattle office. He said he believes the stock is worth at least $30 per share.
PairGain stock traded at a high of $42.50 a share in late January but has fallen on concerns about the company’s performance and about overall industry performance, analysts say.
While the company’s sales might decline this year, Pluckhahn said, profit margins in the industry have been higher than usual in recent quarters, so the price cutting now “should do no more than bring margins back down to normal.â€
He said he believes the company’s stock is being battered by “momentum investors†who buy when a stock is moving up and sell as soon as there is any hint of a slowdown in the company’s performance.
Analysts expect PairGain to earn 79 cents a share this year, or about 55% more than its earnings last year of 51 cents a share. First-quarter sales of $70.7 million rose 75% from year-earlier sales of $40.5 million.
