Four Early Movers On Friday … Are Any 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.
Earnings and earning-related news is the number one catalyst for stock movement. A strong quarter can dictate the direction of a stock for the following three months as can a bad quarter; in the past I have written in detail about such subjects, a domino effect following a strong or bad quarter. Therefore, I am looking and assessing four of the top movers following earnings on Friday.
Modest Growth Finally Takes its Toll
IPG Photonics (NASDAQ: IPGP) is trading lower in early trading by almost 8% after reporting earnings. The company’s stock had been trading near 52-week highs after a 25% three-month return, but after posting revenue growth of just 17% year-over-year (yoy) it’s very possible that investors will reassess their position.
This is a tech stock that is trading with a price/sales of 6.5 and at 21.05 times next year’s earnings. The company has operating margins of 38%, therefore it doesn’t appear expensive to the naked eye. However, the problem is that margins are near maxed and top-line growth is slowing.
As a result, after a top and bottom line miss, I’d avoid the stock for now, and would not pay more than a 4.0 price/sales multiple on this stock due to slowing growth.
Ellie Continues to Exhibit Perfection on All Levels
Ellie Mae (NYSE: ELLI) is trading higher by 12% after reporting earnings that blew past expectations. This is a company that grew its revenue by 60% yoy, issued guidance above the consensus, and saw a 10% rise in users of its loan origination software. The company’s software is growing rapidly yet trades with a price/sales of slightly below 6.0.
Keep in mind, IPG Photonics, the company above, grew by just 17% and trades with a similar valuation. As a result, I definitely think Ellie Mae is a great potential investment, a company with room to grow in a mortgage industry that appears to be on the rise.
A Quarterly Beat is Not Enough to Counter Weak Guidance
Technology company LogMeIn (NASDAQ: LOGM) continues to add to its one-year decline following earnings. The stock is currently trading lower by more than 25% after beating earnings expectations, due to issuing weak guidance. This is a stock that simply can not fall fast enough, a company that has continued to lower its guidance and is now growing by less than 15% year-over-year.
Obviously, the stock is not nearly as expensive as it was last year, now trading at just 4.37 times sales, yet investors must wonder if growth is in the company’s future. After a one-year loss of more than 55%, I still think I’d avoid this stock.
Qlik Breaks Out With Strong Earnings/Guidance
Qlik Technologies (NASDAQ: QLIK) is trading higher by over 18% after the company’s earnings beat on both the top and bottom line. The company saw revenue growth of 27% over last year, saw 40% growth in North America, and provided excellent guidance.
The company is what I consider to be fairly valued. It has had a rough year in terms of performance and this is the quarter that could lead to a larger trend higher. It trades with a price/sales of 5.44, which is appropriate considering its growth, and has significant room to expand its operating margins of 3.45%. Overall, the quarter was strong, the outlook is great, and this appears to be a company on the rise.
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. 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 logically assess what caused a stock to move compared to its valuation, or by learning how to first read a quarterly report before admiring the stock’s reaction. Then, if there is a distinction in value you are able to capitalize on the value.
BrianNichols is long ELLI. The Motley Fool recommends Ellie Mae, IPG Photonics, and Qlik Technologies. The Motley Fool owns shares of IPG Photonics. 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!