Thursday’s Post-Earning Decliners: Is it Time 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.

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. In this piece I am looking at three stocks that moved considerably lower after reporting earnings on Thursday, and I am determining if any are presenting value.

Earnings Indicate Uncertainty for this Company

The Carlyle Group (NASDAQ: CG) declined 7.83% after the asset management firm announced Q4 earnings. The company’s revenue was solid, beating by $158 million with $755 million reported. However, it was the company’s bottom line that created weakness, as it missed expectations by $0.17 with an EPS of $0.49.

Part of what made The Carlyle Group lose so much value is the strong performance of private equity over the last year, and the performance of other companies in its space.

The company’s 28% net income decline is extremely disheartening, especially considering the firm charges performance fees in excess of 40%! This might indicate weak operational performance, and may be the reason behind its decision to focus on fundraising.

Regardless, the stock had traded considerably higher over the last few months due to takeover rumors. And although I am impressed with the revenue, I would wait, as there seems to be a lot of uncertainty at this time.

Lack of Innovation Continues to Crush this Stock

Synacor (NASDAQ: SYNC) was the top loser on Thursday with its loss of 38% after Q4 earnings. The technology company actually exceeded expectations on the top line and was in line on the bottom.

However, the company’s guidance for both Q1 and 2013 was horrendous as the company blamed Microsoft’s co-marketing program for OEMs that require MSN (not Synacor’s created start pages) as the default start page on Windows 8 as the reason for the weak guidance. As a result, with Microsoft moving to a more mobile platform, this news implies that Synacor might be left behind due to a lack of innovation.

It has been an incredibly difficult year for investors of Synacor, as the stock has lost almost 80% of its value since July 2012. The company has simply not adjusted to the new mobile era, and its blame toward Microsoft is proof that the company is not ready for this shift in consumer preference. As a result, despite the stock being cheap, there is no way to judge or predict its future, and I wouldn’t touch the stock.

Undervalued Biotech Slips Lower

Spectrum Pharmaceuticals (NASDAQ: SPPI) slipped lower by 4.23% on Thursday after the company beat on both the top and bottom line. The company did not issue exact guidance, only said that revenue would increase in 2013. However, investors are most likely reacting to the company’s sales of its best-selling drug Fusilev, which recorded $44.6 million (flat yoy and down 14% sequentially).

Spectrum Pharmaceuticals has always been one of the fastest growing biotechs in the market, but now with generic pressure on its drug, Fusilev, sales have stalled. Therefore, in order for the stock to appreciate, sales from its other two drugs must increase. As a result, I found it encouraging that sales of Zevalin (most underperforming drug of the decade) grew 20% yoy and that Folotyn posted almost $15 million.

Overall, I think the quarter was solid. The stock has lost 23% of its value since January 2012 as investors expect a slowdown in Fusilev sales, therefore I am not sure what surprised investors about this quarter. Considering the strong sales from Zevalin and Folotyn, I think the quarter was strong and that the response was illogical.

Conclusion

In my bookTaking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors 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 are capable of realizing their losses because of their occasional gain. Investors need to avoid this behavior, and not look at the performance and then the news, but rather read the earnings report first and then make a decision based on the information within. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns. 


BrianNichols is long SPPI. 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!

blog comments powered by Disqus