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Why Shares In CML Microsystems Plc Plunged 20%

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares of CML Microsystems (LSE: CML), which designs and manufactures semiconductor products and employs 180 personnel, fell by more than 20% to 416.5p after conveying “short-term caution” on revenues.

The firm expects that it will resume revenue growth in commencing in 2015 after securing new contracts, some of which will take the firm into new sub-market areas.

So what: The Essex-based firm reported a 6% increase in pre-tax profit to £5.8m for the year to March, but the improvement in profitability was driven by a strong first six months.

Second-half sales were disrupted by the exit of one of CML’s customers from the embedded storage space, as well as cyclical volatility from the wireless business. These headwinds in the second half of last year will continue to have an impact, but beyond this year the board is “confident of delivering a return to revenue growth”.

Group revenue fell to £24.4m in 2014 from £24.7m a year earlier.

Now what: The final dividend was increased 14% to 6.25p, which will be paid on 1 August to all shareholders on the register at close of business on 4 July. Basic earnings per share increased 7% to 30p and, following this morning’s price movement, the shares may trade on a P/E of 13.9.

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Mark does not own shares in CML Microsystems.