One of the worst performers on the market today has been the Technology One Limited (ASX: TNE) share price.
At the time of writing the enterprise software company's shares are down 14% to a 52-week low of $4.38.
Why have its shares been crushed today?
This morning Technology One provided the market with a trading update.
As you might have guessed from the share price decline, it wasn't an overly positive one.
According to the release, due to the slower than anticipated return to profitability of its consulting business, the company expects profit growth for the full-year to be between 7% and 9% year-on-year.
Previous guidance had been for profit growth of between 10% and 15% year-on-year.
Management had expected a strong sales pipeline to overcome the poor performance of its consulting business, but has been unable to close a number of significant deals before the end of its financial year.
However, it remains confident that Technology One is positioned well to continue growing strongly for the next few years thanks to its cloud business and new licences.
Should you buy the dip?
Even after today's sizeable decline I estimate that its shares are changing hands at over 31x forward earnings.
In my opinion this is expensive even based on its previous guidance. So I would caution against buying the dip after this disappointing downgrade.
Whilst there's no doubt that there is a significant opportunity for the company's cloud business, I would hold off an investment until it is either trading at a fairer price or delivering growth that justifies the premium.
In the meantime I would sooner invest in Nextdc Ltd (ASX: NXT). It too is benefiting from the migration to the cloud, but is thus far delivering strong enough growth to justify the premium its shares trade at.
