Are Any of These Friday Losers Presenting Value?

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

There's something psychologically disheartening about a stock that is trading lower. It's often difficult to buy such a stock, especially when the market is trading higher. However, often times these lower trading stocks present great value; and trade lower by mistake. In this article I am looking at three big losers on Friday to determine if any are presenting value.

Small Cap Falls on Fairly Strong Fundamental Performance

Guided Software (NASDAQ: GUID) a small cap tech stock, lost almost 20% of its valuation on Friday after posting in-line EPS growth and slightly missing top-line expectations. Prior to the earnings announcement, Guided Software had seen a 70% one-year return, but the slight miss was enough to create mass selling in shares of the stock.

Personally, I don't see why it fell so much lower, the company grew revenue over 20%, and although guidance may have been a little weak the fundamentals were still solid. Furthermore, it's not as if this is some outrageously priced stock. It trades with a price/sales under 2.50 and a forward P/E ratio of 15.75. Therefore, with improving fundamentals, it might be wise to use the weakness as a buying opportunity if you're looking for a small cap tech stock for your portfolio.

Too Many Inconsistencies Push this Stock Lower

Nuance Communications (NASDAQ: NUAN) is another stock that fell 20%, although much larger than Guided Software. The company missed earnings expectations and also guided for several quarters of weakness. Actually, it didn't guide for weakness, but rather a large range of "potential" earnings that could either be in-line or below.

The company continues to blame a decline in PCs for its healthcare problems, which doesn't really make sense to me. Personally, I would avoid this stock, and not just for bad guidance. This is a company with too many inconsistencies, too much debt, and falling margins. The company itself is innovating and interesting thanks to its connection with the iPhone with its "Siri" product, yet innovating and interesting doesn't always return gains. I'd rather have dull and boring every once-in-awhile.

Too Many Questions with this Company, Although Value Could Be Close

Riverbed Technology (NASDAQ: RVBD) fell almost 18% after its earnings report. What's funny is that its 17% revenue growth was actually a little better than expectations and its EPS was in-line with consensus. However, much like Nuance it was the guidance that killed this stock.

Right now, there seems to be a lot of problems, or a change in direction at this company. The company's 8-k showed that one of its board members abruptly resigned and without reason. And investors continue to worry about its recently acquired OPNET, as well as its core hardware segment. Much like Nuance, I see too many questions, yet if the stock continues to slip, I do think the risk could be worth the reward. I'd say $15 begins to look attractive from a fundamental point-of-view.

Conclusion

Too often we associate stock performance with fundamental performance, yet it’s the inconsistencies between these two factors that create value. The ability to identify these inconsistencies is a psychological behavior-changing skill that very few investors are able to perfect. In the past, I have talked about this subject in great detail, and have taught investors how to change these tendencies to return large gains. My advice is to become a smart investor, by learning how to assess a stock moving event without forming an opinion based on stock movement. Then, if a stock trades incorrectly you are better able to capitalize on the value.


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Nuance Communications and Riverbed Technology. The Motley Fool owns shares of Nuance Communications and Riverbed Technology. 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!

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