Why the Senetas Corporation Limited share price crashed today

Shares in cyber security business Senetas Corporation Limited (ASX: SEN) plunged 26% to 14 cents today after the company disclosed softer-than-expected sales for the six months ending 31 December 2015.

The company now expects to make a net profit before tax of between $1.7 million and $1.8 million for the first half, which is significantly down from the $2.8 million achieved in the prior corresponding period.

The big sales falls were blamed on delays to government contracts and some temporary sales disruption resulting from the restructure of the Gemalto sales team. It’s no surprise that investors reacted to the news by dumping the stock, as Senetas was generally regarded as a growth business in the IT security sector.

Other news rattling investors is that the company forecast profit for the second half of the year will be “similar to or slightly higher than the previous corresponding period which will result in a Net Profit Before Tax of approximately $5 million being achieved for the full year to June 2016”.

The prospect of flat profit growth in the second half (after big falls in the first half) suggests the share price may have further to fall. This as it is still priced for strong growth on around 34x trailing earnings per share of 0.4 cents in 2015.

Another business in the IT services space to take a big hit on an earnings downgrade over the last few days is Empired Ltd (ASX: EPD). Its shares fell 7.9% today after falling 35% last Friday after a big downgrade to earnings expectations for the year.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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