Castlight (CSLT) Down More Than 5%: What's Hurting The Stock?

Are you still holding shares of Castlight Health Inc. (NYSE:CSLT) and waiting for a miracle to take the stock higher in the near term? If yes, then you might end up losing more money as chances of a turnaround appear bleak in the near term. This is apparent from the stock’s decline of 8% in the past year. Moreover, the industry which it belongs to grew 33.8% in the same time frame.

Shares of the company also went down 5.5%, yesterday. Let’s delve deeper and try to find out what is taking this Zacks Rank #4 (Sell) company down the hill.

The sharp decline in share price can primarily be attributed to dismal earnings surprise history. Evidently, fourth-quarter fiscal 2017 marked the company’s 10th straight bottom-line loss. The company reported a loss of 4 cents per share in the last quarter, in line with the Zacks Consensus Estimate.

Non-GAAP gross margin also contracted 710 basis points (bps) from the year-ago quarter to 67.7%. Further, the company continues to invest heavily on research & development. Non-GAAP research & development expenses and general & administrative expenses expanded 690 bps and 100 bps, respectively, to 34.3% and 14.2%.

Outlook Remains Bleak

Castlight also provided not so encouraging guidance.For 2018, the company forecasts revenues between $150 million and $155 million. The Zacks Consensus estimates is pegged at $153 million. Non-GAAP loss is expected between 11 cents and 15 cents per share.

The company anticipates first-quarter 2018 revenues to decline by about $1 million sequentially. Moreover, gross margin is expected to contract sequentially as company’s investments increases. Operating loss is projected to increase due to revenue seasonality.

Management expects to report break-even in fourth-quarter 2018. The company’s higher level of investments on research & development is anticipated to continue, as it focuses on expanding offerings globally.

Moreover, adoption of ASC 606 is projected to negatively impact revenues in 2018. The company also expects cost of revenues and operating expense to be slightly lower in the year owing to adoption of the accounting standard.

Downward Estimate Revision

Let’s look at Castlight’ earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. Over the last 60 days, six fiscal 2018 estimates were revised downward with no northward revisions, resulting in the Zacks Consensus Estimate widening from a loss of 9 cents to a loss of 12 cents per share.

Moreover, the Zacks Consensus Estimate for fiscal 2019 has declined by 75% to 1 cent, over 60 days.

So it may not be a good decision to retain this stock in your portfolio anymore, at least if you don't intend to wait for a long time.

Stocks to Consider

Few better-ranked stocks in the broader technology sector include Applied Materials, Inc. (NASDAQ:AMAT) , NVIDIA Corporation (NASDAQ:NVDA) and Western Digital Corporation (NASDAQ:WDC) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, NVIDIA and Western Digital have a long-term expected EPS growth rate of 13.26%, 10.25% and 19%, respectively.

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