RVBD (Riverbed Technology)

Riverbed is in the computer networking sector and came public in September at $10.00. The stock quickly amassed big gains trading up over 50% from its initial price and never looked back. It took until December for the stock to make any meaningful pullback but it finally consolidated.

Yesterday, the stock broke out of a 2 month consolidation on the 2nd day of strong accumulation. The stock is liquid enough to put a decent position on and I decided to take a trading position as this setup usually leads to much larger moves.

Fundamentally the company is supposed to turn its first profit in 2007. This means that obviously the stock is valued at a steep premium to earnings, but those earnings could rapidly rise over the next year or two to easily catch up to the stock price.

Feb 10, 2007

The company released earnings on Thursday as well as announcing that they will issue an additional stock offering. While the earnings numbers and guidance appeared very healthy, the expected dillution from the stock offering (more likely the anticipated extra supply) caused the stock to sell of sharply. I was left with about a 15% loss almost overnight so after realizing that the stock is not going to bounce (at least initially) I went ahead and turned out my position for a loss yesterday.