The Biggest Losers of this Earnings Season: Are Any Priced to Buy?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I can’t imagine that being atop a list for the worst performing stocks of a quarter is a good thing for any company. It signals operational issues, lost confidence among shareholders, and a total lack of execution. However, looking back on history, most companies experience such a quarter at least once. With that being said I am looking at the top losers of Q3, and will determine if any might be a “buy’ at current prices.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>Earnings Day Performance</p> </td> </tr> <tr> <td> <p><strong>Active Network</strong></p> </td> <td> <p><strong><span class="ticker" data-id="225367">(NYSE: <a href="">ACTV</a>)</span></strong></p> </td> <td> <p>(41.66%)</p> </td> </tr> <tr> <td> <p><strong>ABIOMED</strong></p> </td> <td> <p><strong><span class="ticker" data-id="202700">(NASDAQ: <a href="">ABMD</a>)</span></strong></p> </td> <td> <p>(31.33%)</p> </td> </tr> <tr> <td> <p><strong>Constant Contact</strong></p> </td> <td> <p><strong><span class="ticker" data-id="215548">(NASDAQ: <a href="">CTCT</a>)</span></strong></p> </td> <td> <p>(29.95%)</p> </td> </tr> <tr> <td> <p><strong>Western Union</strong></p> </td> <td> <p><strong><span class="ticker" data-id="209535">(NYSE: <a href="">WU</a>)</span></strong></p> </td> <td> <p>(29.01%)</p> </td> </tr> <tr> <td> <p><strong>HMS Holdings</strong></p> </td> <td> <p><strong><span class="ticker" data-id="207189">(NASDAQ: <a href="">HMSY</a>)</span></strong></p> </td> <td> <p>(23.44%)</p> </td> </tr> </tbody> </table>
  • Active Network won this award by a long-shot, losing more than 40% of its value after earnings. The only problem is that after looking at the quarter, its earnings weren’t that bad. The company missed top-line expectations by just $1 million and was in-line with bottom line goals. However, it was the Q4 guidance and the initial 2013 guidance that was discouraging, and ultimately pushed shares lower. This is a company that is growing by more than 20% year-over-year, and is now trading with a price/sales of less than 1.0. Therefore, I think it’s an interesting stock, but not a buy. The company might be approaching 2013 with caution, which might serve it well. Therefore, an investment might pay off, but only in small amounts.
  • ABIOMED posted an incredible quarter, crushing expectations and reporting solid growth. The company saw an EPS of $0.20, which was far greater than the $0.05 that Wall Street expected. However, buried in the company’s Q3 report was news that the U.S. Attorney’s Office is conducting an investigation on the company’s lead product. Therefore, the stock is presenting great value, but also great risk. Because if there is one thing I’ve learned in all my years investing, it’s that when there is smoke there is almost always fire, and I don’t want to hold this stock if the bad news comes crashing down.
  • Constant Contact saw a result similar to Active Network's. The company’s earnings weren’t bad, and even beat bottom line expectations and saw solid top-line growth. However, guidance was weak, and concerns continue to rise about the company’s inability to convert trial users. The good news for investors is that this is a very cheap stock, trading with a P/E ratio of just 15.81; but much like Active Network, I think I would wait for one good quarter to reverse the trend.

  • Western Union missed on all measures. Not only did the company miss its earnings expectations, but also lowered guidance in the process. The company continues to show signs of a broken business model. Therefore, I agree with the countless analysts who downgraded the stock, and who say “stay away.”
  • HMS Holding became the perfect example of a company with high expectations, a large valuation, and falling excessively when a good quarter did not live up to expectations. The company saw top-line growth of 22.6% and missed its target by a small margin. Therefore, I don’t see long-term troubles with this company, but rather a pullback in a stock that had traded with a four-year continuous gain.

Of the stocks listed above I don’t see any clear cut winners, or a stock presenting deep value that trumps its risk. I do think that several could trade higher, but I also believe you will be able to acquire most of these stocks for near the same price in the coming months. The reason is simple: when a stock falls to a large degree following earnings it often becomes dead money, with little movement. But once the issues that pushed the stock lower become solved, it can lead to a very nice rally, and several of these stocks present that level of upside potential. 

BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of The Active Network. Motley Fool newsletter services recommend The Active Network and Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus