Why Astera Labs Is Sinking Today

Astera Labs (NASDAQ: ALAB) is heading lower Wednesday following the company's first-quarter earnings report yesterday. The connectivity tech specialist's share price was down 4.7% as of 12:20 p.m. ET. The stock had been down as much as 11.2% earlier in the day.

Astera published its Q1 results after the market closed yesterday and reported sales and earnings that topped Wall Street's expectations. On the other hand, it looks like investors weren't satisfied with the company's forward guidance.

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Astera Labs sinks despite very strong growth in Q1

Astera Labs reported non-GAAP (generally accepted accounting principles) adjusted earnings per share of $0.33 on sales of $159.4 million in Q1. For comparison, the average Wall Street analyst estimate had called for adjusted earnings of $0.28 per share on sales of roughly $151.5 million. The company's sales surged approximately 144% compared to the prior-year period.

What's next for Astera Labs?

For the second quarter, Astera is guiding for sales to come in between $170 million and $175 million. At the midpoint of the guidance range, that would mean delivering sequential quarterly growth of 8.5%. Meanwhile, management is targeting an adjusted gross margin of 74% for the period.

At the same time, adjusted earnings per share are expected to come in between $0.32 and $0.33 -- roughly in line with last quarter. With the company's gross margin projected to hold steady, the company's earnings guidance suggests a significant uptick in operating expenses.

While some investors may have been looking for stronger sales or earnings guidance for the current quarter, Astera's Q1 report and targets for Q2 actually look quite strong. If you're considering building a position in the stock, today's pullback on a strong earnings report could be a worthwhile buying opportunity.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.