Tuesday's After-hour Movers: What’s Moving These Stocks?

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

Yesterday's after-hours trading had a slew of big-time movers that made their jumps for a variety of reasons. I'm looking at these stocks to determine why each traded with such volatility, hopefully identifying some value in the process.

For Once, this Stock is Trading Higher

After losing more than 50% of its value over the past year, Green Dot (NYSE: GDOT) traded higher by more than 16% during after-hours on 86,400 shares traded. The big move is occurring for three reasons:

  1. news that TSS is acquiring rival Net Speed for a 30% premium,
  2. Green Dot has been the center of M&A chatter for the last year, and
  3. the stock had 9% of its float shorted as of Jan. 31.

While the acquisition of Net Speed may hurry any potential acquirers, I don’t like to buy on buyout rumors -- it almost always ends badly. Therefore, if you’re going to buy, then buy GDOT because it’s growing by more than 10% year-over-year and is trading with a forward P/E ratio of just 11.8.

Personally, I think the stock is fairly priced, but after the move higher, I think it could be a little too high. Therefore, I’d wait!

Mobile Ad Revenue Sparks Fear in Investors

Shares of volatile technology stock Pandora (NYSE: P) traded lower by 2.65% in after-hours after mobile display ad network owner Millennial Media missed Q4 earnings expectations and issued light guidance. This implies weak mobile revenue for Pandora, or at least ad rates for mobile ads.

In the past this has been a good indication, but keep in mind that the company earns much higher ad rates on PCs. The bottom line is that this is a volatile stock with 58.6% of its float being short. And after a 75% three-month trend higher, perhaps this is a good sign to take profits ahead of earnings next month.

Ad Stock Gets Slaughtered

Millennial Media (NYSE: MM) was trading with a 25% loss on 678,000 shares traded. The company met bottom-line expectations; however revenue was a little weak, missing by $4.89 million after reporting $58 million. Furthermore, the company reported guidance for both Q1 and 2013 that was far below the consensus, and gave no reason for the weakness.

However, if the company meets its new guidance, it would still represent top-line growth of 80%! For a company with 80% growth, its price/sales ratio of 7.2 is very attractive. Therefore, it might be wise to use this weakness as an opportunity; although I would wait a week, as these harsh sell-offs typically result in two or more days of loss.

Breakup Overshadows Mediocre Earnings

Demand Media (NYSE: DMD) traded higher by more than 16% in after-hours trading, on almost 400,000 shares traded. The company announced earnings, and the report was less than stellar. Demand Media posted an EPS of $0.12, beating expectations by $0.01, but was short on revenue by $12.3 million, with $84.4 million.

The company guided above expectations, but also said that it’s exploring the breakup of its media and domain name ops into separate publicly traded companies.

To me this move is really hard to comprehend. A $12.3 million miss is huge when a company is reporting less than $100 million in revenue. Basically, the company missed expectations by 20%; therefore I am not sure why the market is rewarding the stock. Seeing as how I don’t understand the large gains, I most definitely would not buy right now with the stock trading so much higher.

Conclusion

In my book I examine human behavior and the psychological effects that take place when a stock shoots higher or falls drastically lower (think roulette at a casino). For many investors, chasing these trends is common, even addicting, and very few can recognize their losses because of the occasional gain. Smart investors always look at the news that caused the movement, and then determine if it justified the stock's rise or fall. Most people look at the performance first and then scan the news. Yet finding the inconsistencies between the performance and the fundamentals is what will ultimately create value and large gains. 


BrianNichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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