Twits Up, But Revenue And Stock Down For OCZ Technology Group, Inc. (OCZ)

Whoa, while twits or tweeting might be soaring, the solid state drives (SSDs) maker's stock is getting smashed, down more than 18% as of this keystroke. The inverse relationship is due to OCZ lowering its fiscal Q2 revenue forecast. OCZ tech has problems with supply constraints for NAND flash memory. They can't get enough of it.

Now, management has set preliminary revenue guidance for the second fiscal quarter of 2013 to approximately $110 to 120 million compared to the previous topline guidance of $130 to $140 million. At the low end of the reduced outlook, sales are still expected to rise 40% compared to $78.5 million for the second fiscal quarter of 2012, but could be lower quarter-over-quarter.

With the stock crashing nearly 20% despite a minimum growth rate of 40% begs the question, is this a buying opportunity or time to get the hell out before it's too late?

Assuming that analyst cut earnings projections for the current quarter and full year by the maximum previous high range revenue estimate ($140m) to the new low end ($110m) or 21%,  the worst case for 2013 sales should be in the neighborhood of $537.6 million, with earnings per share of about a dime.

Using our new math, OCZ Technology is trading for 55 cents on the dollar per share in sales. That's slightly less than half the industry norm of a price-to-sales ratio of 1.19. However, with maybe 10 cents in earnings for 2013, the forward P/E of 44 is considerably higher than the industry's trailing P/E of 13.28. For growing companies, the forward P/E is always lower than the current price-to-earnings ratio.

The small-cap's P/E valuation is out of whack when you consider that competitors trade at a discount of 30% to their quarterly revenue growth rate. Using the same math, OCZ could trade down to 31 times earnings, or $3.10 per share. We don't think that will happen, but it could.

From our experience with crash and burn stocks, the first day of pain is the worst. Most of the panic sellers have already submitted their buy-tickets when the company trades seven times its normal volume and a third of its float (shares available for trading).

You have to remember, for every seller there is a buyer. The folks buying today will be reluctant to sell the stock anytime soon, probably at least until actual earnings are announced on October 3, 2012. That's when management will have a chance to update current conditions and Wall Street will be able to measure the damage fully.

We would expect the stock to drift a little lower in the next couple of days; maybe a dime or so underneath today's low of $3.90. From there, iStock would anticipate the price banging off the low a time or two or three to establish a clear support level.

Once that happens, the most we would expect to see is OCZ Tech rise to the neighborhood of today's high of $4.48. That's the pattern we usually see, but, obviously, not always the case.

With 38% of the float sold short already, it's doubtful that the number will grow too much. Instead, profit taking by purchasing the stock could lift shares higher. Although, many traders are likely to adjust stop loss orders lower, closer to today's high, just in case selling pressure continues.  

For the folks interested in buying weakness, iStock would suggest one of the two strategies. First, and our least preferred option, let the stock fall some more and wait for it to bounce off a similar price at least two times. At the minimum, that will give traders a sense of where to put stop loss orders.

What we would rather do is to wait for OCZ Technology Group, Inc. (OCZ) to close handsomely inside of today's gap down, somewhat higher than $4.50. Such a move would open up the possibility of OCZ closing the gap, so to speak. Which means the stock price could jump to September 5th's low of $5.27 or higher; making back most of today's haircut.

Now, keep the twitter buzz buzzing by hitting that little tweet button you see up top.