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Shares of Parametric Technology (PMTC) fell 21% ahead of the long Easter weekend. The developer and marketer of 3D development software solutions lowered its second quarter outlook.

Lowered outlook

Second quarter revenue for the product-design software maker falls short of its own expectations after the company did not close a large transaction in Europe and performance of its North American business fell short of expectations. According to CEO Heppelmann, the European deal could have generated as much as $10 million in revenue for the second quarter and it may be at risk altogether. As a result of the issues the company now expects earnings per share of $0.26-$0.28 on $300 million in revenue compared to an earlier guidance range of earnings per share of $0.32-$0.36 on a $305-$320 million revenue guidance.

Valuation

The software producer ended its quarter with $170 million in cash and some $200 million in debt, according to its latest quarterly filing, leaving a mere "net debt" position of $30 million. After Thursday's 21% decline, shares are valued at $2.5 billion, which values the company at 2.1 times annual revenue and 29 times annual earnings. This valuation compares to a 4.2 and 8.6 times annual revenue multiple for competitors Autodesk (ADSK) and Ansys (ANSS) respectively. Both competitors trade around 33-34 times annual earnings.

Investment Thesis

Shares of Parametric hit an all time high earlier this week, but after Thursday's setback it will take some time to recover to those levels.

With a revenue expectation of $620 million for the first half of 2012 the company is on track to exceed annual revenues of $1.25 billion in 2012 on which it should easily earn over $100 million. The company does trade at a sizable revenue and earnings discount to its competitors and a slight beat for the second quarter or good news about its European contracts could lead to a swift recovery of its shares.

Investors have been scared by this week's announcement, but the news remains largely a one-time issue. Investors with a longer time horizon could easily pick up some shares for the long run.

Source: Parametric Technology: Sell-Off Provides Opportunity For Long-Term Investor