Why Did My Stock Just Die? Riverbed Technology, Inc. (RVBD), Roundy’s Inc (RNDY)

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Better import and export trade data helped the Dow Jones Industrial Average close in on the 14,000-point threshold at the end of the week, letting the index close on a high note. But international trade imbalances had little impact on the companies below, which were among the more notable ones going in the opposite direction and leading the way down.

Company Percentage Change
Nuance Communications (NASDAQ:NUAN) (18.5%)
Riverbed Technology (NASDAQ:RVBD) (17.6%)
Roundy’s (NYSE:RNDY) (7.9%)

Now don’t go running over the cliff like a lemming; it could just be a temporary situation. Let’s first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.

Riverbed Technology, Inc. (NASDAQ:RVBD)Finessing a difficult terrain
I’ve been leery of the investment thesis for Nuance Communications for some time because of its heavy reliance upon growth by acquisition. I’ve noted it’s never a problem until it’s a problem, and though the speech-recognition leader laid partial blame for its big earnings hiccup on delays in waiting for Microsoft Corporation (NASDAQ:MSFT)‘s new operating system to be unveiled, it also noted lower future PC sales would likely weigh on results, too. All this scrambling for more companies to buy up seems to have blinded it to tending to the business at hand.

Transcription service volumes dropped as electronic medical record-keeping was more widely implemented, which at least had the effect of seeing more of its Dragon Medical speech-to-text software installed. But with Europe going through another recession, businesses have largely put on hold any spending plans contributing to the decline. Worse for investors, though, was the dour guidance for the year, which came in below analyst expectations as well.

Nuance’s P/E ratio is still twice what analyst estimates’ are for its long-term growth prospects, making it seem expensive, particularly as it needs to churn through the integration phase of its acquisitions. I see more indigestion in Nuance’s future.

A suboptimal performance
Riverbed Technology also got crushed because it came up short of analyst expectations last week as investors feared its WAN optimization business is operating at optimal levels. Like Nuance, the network optimization specialist had profits crimped because of acquisitions and forecasts of future growth lower than what Wall Street wanted.

In contrast to Nuance, I like Riverbed’s prospects — even if it seems the riverbed of opportunity has run dry. As I noted last fall, 2012 was recognized as a transition year for the company and it is only just emerging from the product switch-out it began last year. I would’ve preferred seeing a bit of traction being gained in the fourth quarter, but 2013 was the year I thought Riverbed had real chance of gaining momentum.

Also like Nuance, it carries a rich valuation when you compare its P/E to growth, but with its enterprise value trading at 12 times its free cash flow, I find it a much better value than Nuance, whose EV goes off at more than 16 times its FCF.

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