Why Confluent Stock Was Tumbling This Week

One of the more beaten-down tech stocks over the past month or so has been data streaming specialist Confluent (NASDAQ: CFLT).

That trend continued in the past few days, as according to data compiled by S&P Global Market Intelligence, its share price had shed more than 19% week to date as of late Thursday evening. A pile of analyst price target cuts following an earnings report did the stock no favors.

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The first quarter was a flop, at least to investors

Often, even when a shunned stock has decent news to report it can be vulnerable to a sell-off. That's what happened Thursday when the market reacted to Confluent's first-quarter earnings report.

The company posted double-digit percentage gains in both revenue and non-GAAP (adjusted) net income, with both figures topping the average analyst expectations. Yet that clearly wasn't good enough for investors, who aggressively traded out of the stock and left it with a steep loss on the day.

The problem wasn't necessarily trailing results; it was guidance. Management's outlook for the entirety of the year anticipates notably lower growth in key categories, such as Confluent's all-important subscription revenue. Stocks trade on forward potential, after all, not trailing results -- no matter how impressive they might seem.

A clutch of price target cuts

One group of professionals unimpressed with Confluent's performance was the analysts tracking the stock. In disseminating the quarter's results they wasted little time in cutting their Confluent price targets.

One of the more drastic reductions was made by Needham's Mike Cikos, who now feels the stock is worth only $26 per share, down a fair distance from his previous $40. Yet he still sees potential in the business, as he maintained his buy recommendation.

I'm not sure I'd be as bullish; however, at this point Confluent seems to be oversold by investors nervous about potentially withering growth rates. Right now it might be a good play on significant share price weakness.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.