When "momentum stock" Autodesk lost its mojo after a less-than-perfect quarter, CNBC's Jim Cramer knew he had to take another look at the software company's business to vet the decline.
Autodesk, which makes computer-aided design software for an array of industries from architecture to entertainment, posted a small earnings beat on Nov. 28. Cramer didn't find many negatives in the report, but after it was released, the stock tanked 16 percent.
"When you see a market darling turn on a dime like this and get slammed, you've got to circle back to the story and ask yourself a simple question: are we dealing with a broken stock or a broken company?" the "Mad Money" host said. "In other words, did Autodesk merely hit a speed bump, or did it crash into a retaining wall at 80 miles an hour?"
Before the latest quarter, Autodesk was one of the top 20 best-performing stocks for 2017. Shares of the software play had run up over 70 percent for the year.
But even though its third-quarter results beat Wall Street's earnings and sales estimates, management also lowered its full-year guidance and announced a restructuring plan replete with roughly 1,150 layoffs, according to an SEC filing.
"It implies that things aren't going well. And since when does Autodesk need to turn things around?" Cramer said. "You typically don't roll out a restructuring plan when your business is firing on all cylinders."
And until the latest quarter, Autodesk did appear to be firing on all cylinders. The company is a leader in design software that Cramer called "the best tech company you've never heard of."
The "Mad Money" host recommended Autodesk's stock after the company started moving operations to the cloud, concurrently reporting a series of strong quarters. In August, Autodesk delivered a strong top- and bottom-line beat with a 94 percent increase in cloud revenues.
Soon after, the stock was peppered with a series of analyst upgrades: Guggenheim, Canaccord, KeyBanc and RBC Capital all raised their price targets on the name, with Guggenheim taking it from "neutral" to "buy."
"Now, I'm a big believer in the idea that you need to be wary when a stock runs dramatically going into the quarter, and all these supremely bullish analysts sure didn't help," Cramer said.
In fact, the bulls effectively set Autodesk up for failure, he continued: unless the earnings results were utterly perfect, the stock was doomed.
And this quarter came with more than a few flaws. The earnings beat was smaller than Wall Street was used to from Autodesk.
To make matters worse, the restructuring plan, which management said was done to pay for the cloud transition, took analysts for a spin, raising four separate questions about the move on the conference call.
The guidance was also fairly dismal. Autodesk's sales forecast for next quarter was weaker than expected, and management slashed the high end of its full-year subscription forecast from 675,000 to 650,000. Worse yet, executives said they expected a bigger-then-expected full-year loss.
"This has become a 'show me' story," Cramer said. "While I'm still a believer in the company's long-term prospects, I have less conviction than I did the last time Autodesk was at these levels over the summer. It's actually not as cheap as it was back then, at the same level, because we now have to deal with a whole new set of risks about the future. My verdict? If you own Autodesk, hold it — feel free to ring the register on part of it, absolutely, though — and if you don't like this new level of uncertainty but you think it's a buying opportunity, I suggest you be patient. I think you're going to get a better one."
WATCH: Cramer explains how to play the weakness in Autodesk
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