As the technology sector roars to new highs, investors' eyes have turned to tech stocks like Violin Memory (NYSE:VMEM) with interest. This particular company has been the subject of a number of mixed analysts' research lately, and the variety of opinions has made it a study in contrasts.
However, JPMorgan's (NYSE:JPM) recent unexpected downgrade put the stock on shaky footing and the stock price has continued to plunge since recently going public at $9.00 in late September and closed at $3.11 on Friday, November 22.
The JPMorgan put down is very unusual because less than two months ago the controversial bank was the lead underwriter of this technology company and offered the stock to many of its' best clients at $9 a share on September 27, 2013. See S-1
JPMorgan has been under intense pressure over the past several months dealing with the United States of America and has recently agree to pay $13,000,000,000 to settle a few of its' problems. See our prior article. This poor performing technology IPO will not help the bank rebuild its' tattered reputation.
Violin Memory's recent earning report also fell short of the more optimistic expectations, and many are wondering about its prospects for the future.
About Violin Memory
Violin Memory designs and manufactures flash-drive devices for data storage. Founded in the Silicon Valley in 2005 and went through a number of permutations before coming to its present form. Violin uses a particular type of flash memory storage arrays that allow high-speed storage using Toshiba NAND flash, DRAM and multi-cell clustered file systems used as an external, plug-in card.
Expectations for the company were high since its inception, but utilization of its products has been slow.
The JPMorgan Downgrade
On November 22, 2013, JPMorgan downgraded VMEM stock from overweight to neutral, cutting the price target from $9 to $5.50. Shares had closed at $6.00 on November 21st before plummeting to $3.11 after the downgrade on November 22nd. The JPMorgan downgrade basically cut the stock in half causing several shareholder rights law firms to immediately initiate investigations which typically happens when stocks crash.
The projected future price range for the stock is estimated at $5.50 to $8.00 by several analysts, and JPM decided on the lower end of this range for their outlook. JPMorgan analyst Mark Moskowitz stated that the year over year revenue growth is unlikely to meet projections in the current climate, and the deterioration in the revenue model could not support a constructive stand on the stock. Both general market and company specific factors played a part in this decision.
Looking at the internal problems for the Violin Memory, analysts see a number of inherent obstacles for the company. The company's costs leapt 41 percent in the third quarter of 2013. This is an indication of a number of issues that may take some time to solve. The company posted a huge loss of $.60 per share, $.19 higher than what was projected.
On the marketing front, VMEM has been unable to encourage the use of its products on a widespread basis, which may put limits on any future growth in revenues. Whether future IT design will make that likely is in question at the current time.
We believe that VMEM stock has some challenges to overcome both internally and externally before they can find a path to greater gains. We are also disappointed that JPMorgan underwrote this security for investors.
Investors should take heed of the chorus of warnings about the company's outlook for the future and stay away as we recommended in our initial report on September 26, 2013 when we stated that Violin memory was way out of tune. See Report.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.