OneSpan's Drop: What Was Already Priced In?

The market had already written the script for OneSpan's recent performance. For weeks, the stock's steady climb reflected a clear "buy the rumor" trade, where investors piled in betting on a strong earnings report. That move set the stage for a classic "sell the news" reaction once the actual print arrived. The expectation gap was wide: the market had priced in robust growth, leaving no room for the reality of flat guidance.

Analysts were projecting a solid quarter, but the growth story was already baked in. For the latest quarter, the consensus called for earnings of $0.31 per share, which would mark year-over-year growth of 29.17%. Revenue was expected to be flat at $59.85 million. More telling was the full-year view, where the market had settled on a path of earnings growth of 9% and revenue flat. This wasn't a call for explosive expansion; it was a bet on stability, and the stock had already rewarded that bet with a 4.14% monthly gain that outpaced both its sector and the broader market.

The setup was perfect for disappointment. The stock's recent decline follows the pattern of a rally that ran ahead of the fundamentals. When the actual guidance didn't exceed these already-elevated expectations, the market simply took profits.

The drop wasn't a surprise to the fundamentals-it was a correction to the priced-in narrative.

The Reality Check: Guidance Reset and Valuation

The market's recent disappointment with OneSpan is a classic case of a guidance reset meeting a valuation that had already priced in the wrong story. The expectation gap was stark. For the latest quarter, the consensus was calling for earnings of $0.31 per share, which implied year-over-year growth of nearly 30%. That was the "whisper number" baked into the stock's price. When the company's actual performance or outlook failed to clear that high bar, the stock fell.

The more telling disconnect, however, is at the full-year level. While the market had settled on a path of stability, with the Zacks Consensus projecting earnings growth of 9% and revenue flat, the underlying financial reality is one of a reset. The flat revenue guidance for the year stands in direct contrast to the market's unspoken desire for acceleration-a desire that had been driving the stock's recent rally. This isn't a call for a growth miracle; it's a signal that the easy expansion phase may be over, and the company is now managing expectations to a more modest trajectory.

This reset is reflected in the stock's valuation, which tells the real story. OneSpan is currently trading at a Forward P/E ratio of 9.11, a steep discount to its industry average of 25.1. That ~9x multiple isn't a sign of undervaluation; it's the market's way of discounting significant growth expectations that are no longer priced in. In other words, the stock's low valuation already assumes a slowdown. When the company's guidance confirmed that slowdown, the market didn't punish it further-it simply acknowledged the new, lower baseline. The drop was a valuation reset, not a fundamental collapse.

Catalysts and What to Watch

The next major catalyst is the Q4 and fiscal 2025 earnings report, scheduled for release after market close on February 26, 2026. This event will be the definitive test of whether the recent expectation gap has closed or is set to widen. The market's focus will be twofold: first, on whether the company beats the consensus EPS estimate of $0.31, and second, and more critically, on the guidance it provides for the year ahead.

The stock's recent decline shows that investors have already priced in a stable, flat trajectory. Any beat on the quarterly earnings number alone is unlikely to move the needle significantly if the forward view remains unchanged. The real action will be in management's commentary and any adjustments to the full-year revenue guidance, which is currently projected to be flat. A simple confirmation of that flat line would validate the market's reset narrative. But any change-either upward revision or a downward revision-would be a major signal.

Watch for any shift in the growth narrative. If management provides a clearer path to accelerating revenue, it could begin to close the expectation gap and support a re-rating. Conversely, if guidance is maintained or further tempered, it will confirm the slowdown that the stock's low valuation already assumes. For now, the market is positioned for a reset. The February report will determine if that reset is complete or if a new, more optimistic story can be built.