DragonWave: It's Been a Rough Couple of Months

Includes: CRNT, DRWI
by: TraderMark


I was reviewing some earnings reports from the past week, and DragonWave (NASDAQ:DRWI) competitor Ceragon Networks (NASDAQ:CRNT) reported a nice quarter. That reminded me to look at DragonWave, as I tend to lose track of stocks not in the portfolio or in my watch list to buy on a near term pullback, and saw a textbook example of "sell and ask questions later once a chart breaks."

I stopped out of the majority of the position in early February when the stock broke support. The worse thing that can happen when you sell on a break of support is the stock immediately reverses and runs off without you. While that smarts, you just locked in a small to moderate loss and missed an opportunity (which is actually what happened initially after my February sale). But it saves you from a protracted move down and much larger loss, which eventually is what happened here. (Click to enlarge)

This is happening despite DragonWave trying to defend its stock by taking in "up to" 10% of its float.

Since the company is so dependent on one customer, I assume something has gone awry and "those in the know" have been getting out while the retail investor is being smacked down. But if there is any truth to the full year EPS estimates, the company now trades at 9x forward estimates. It should be an interesting earnings report on May 6th.

Disclosure: No position

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