Computer software developerAVEVA(LSE: AVV) is falling sharply today after the company issued a revenue warning. At time of writing, the companys shares have fallen by around a fifth, making Aveva the FTSE 350sbiggestdecliner today.
And its easy to see why. Before todays warning, Aveva was trading at a forward P/E of 22.5, leaving little room for error if things went wrong.
Profit warning
Aveva warned this morning that the companysfirst-half results are expected to show a material impact from the effects of currency and the timing of key contract renewals. Its expected that these effects will cost the group 14m in lost revenue.
Whats more, after reorganising its global sales force earlier this year, Aveva is now reporting mixed levels of customer activity. Demand for the companys products has fallen within South America and some Asian markets, although double-digit sales growth within China has offset some declines.
All in all, as a result of these factors, the groups revenue for the first half is expected to fall in the region of 84m to 90m, but these numbers could be revised lower if contracts are not signed on time. Management believes that due to the timing of contract renewals, the majority of Avevas revenue will fall within the second half of the year.
In light of todays news and current trading conditions, Avevas management isreviewing the groups headcount growth plans and discretionary expenditure cutting cost in other words.
Still, even after todays warning investors should not give up on Aveva just yet. With the companys earnings now weighted to the second half, investors should wait for the release of these trading figures before making a decision to buy sell or hold.
Plenty of potential
Avevas growth over the past five years has been unrivalled, with earnings per share nearly doubling. The companys shares have jumped 76% over the period as a result, thats including todays loss. Over the long-term, or past ten years, Avevas shares have risen 820%. So, it would appear as if todays slip up is only a slight step back in the grand scheme of things.
Additionally, during the past six months there has been plenty of chatter around the City that Aveva could be a takeover target. Some sources have speculated that the group has beentargeted by a U.S. engineering multinational such asEmerson.SiemensandGeneral Electrichave also been listed as potential buyers, along withDassault Systemes.
Analysts believe that Avevasbusiness is highly defensive for existing players and an acquisition could shut out many competitors. Todays declines could spur a potential buyer into action.
Time to buy?
Today’s declines may put some investors off Aveva,even after considering the company’s historic growth and takeover potential. That’s not a problem, every investor has their own way of doing things and there are plenty of other opportunities out there.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
