Digging Through the Remains of Earnings Season
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earnings season can bring out extreme reactions in the prices of stocks. But, did the underlying value of the company really change as dramatically as prices would indicate? Sometimes the market overreacts and true bargains emerge. I want to dig through some stocks in my portfolio to see if I should be adding to them or whether I should be as concerned as the market is and toss them back into the bargin bin.
Robotic surgical system maker MAKO Surgical (NASDAQ: MAKO) saw its stock fall from the low $40s to the mid $20s after reporting first quarter revenue that was up 51% to $19.6 million. The problem was that analysts were expecting revenue of $23.6 million. They also fell short on earnings (or lack thereof), as they lost 28 cents a share against expectations of a loss of 20 cents a share.
MAKO has been growing revenue at a phenomenal rate the past few years and they are in the very early stages of growth. Not yet profitable, and still a few years away from reaching long-term profitability, some investors are hoping MAKO will someday produce similar results as Intuitive Surgical (NASDAQ: ISRG). With similar business models as they both seek to improve surgical outcomes and drive down costs through the use of robotic technology, it’s easy to see why the parallels are drawn.
The one thing that I found most curious was their raising a $50 million credit facility agreement with Deerfield Management as the price seemed a bit high. Not only that but this also demonstrated that they are not able to raise bank debt at this stage of their development. This certainly does beat raising equity capital, especially with the current stock price. Overall the concern is whether the miss this quarter is just a one-off or the beginning of the end of the run for MAKO. I’d like to see one more quarter before I rush to any judgments
Green Mountain Coffee (NASDAQ: GMCR) got roasted after their earnings fell not only short of analysts, but also well short of their own guidance. They were guiding for net sales growth of between 45% and 50%, yet they came in at 37%. They also watered down 2012 full-year guidance from 60% to 65% down to 45% to 50%. This caused shares to fall off a cliff going from the low $50s to the mid $20s.
The biggest problem was skyrocketing inventory as they just couldn’t sell all the coffee they were roasting. I personally did my part in the quarter, buying my first Keurig brewer and boxes of k-cups on the cheap. I did notice pricing on the k-cups was unbelievably low in some cases, especially on special edition items that they were obviously trying to move out.
I can’t seem to get Green Mountain right as I was short months before David Einhorn spoke out against the stock and ended up closing way too early. If sales really are slowing and management doesn’t have a handle on their own company, there could be more to this cliff. They still face looming patent expirations this fall on the k-cups and potential competition on the brewers with Starbucks and their Verismo machine. Still, I’m not one to rush to judgment so I’m giving them another quarter or two just to be sure the run isn’t done.
Organic Light Emitting Diode (OLED) technology company Universal Display (NASDAQ: PANL) reported a surprise loss that seems to stem from them not recognizing any revenue from their licensing agreement with Samsung. This sent shares tumbling in after-hours trade as the company continues to be very volatile. OLED technology, which is still in its infancy, could be a huge market someday and a lot of this hope is priced into the stock. Universal, a $1.8 billion company by market cap, had revenues of just $12.6 million in the quarter and the revenue from Samsung would have tacked on another $7.5 million for the quarter. The potential for their products to replace LCD screens in all of our electronic devices from smart phones to television sets gives them a huge market opportunity and they have a huge technical advantage with more than 1,400 issued and pending patents. The one paragraph that stood out from their press release was the following:
“Our new arrangement with Samsung SMD provides the first real visibility into our potential future financial performance. Although the OLED industry is still at the stage where many variables can have a material effect on growth, in an effort to increase our transparency, we are providing the following financial guidance. Again with the caveat that the OLED industry is still in an early stage, we believe that our revenues will be in the range of $90 million to $110 million for fiscal 2012.”
As you can see, they have tremendous growth potential going forward. Yet, as they state, they are in the very early stages and a lot could alter their future results. The technology is truly game-changing and they have a nice head start in monetizing it.
Of the three companies I’m most interested in adding to my investment in Universal Display if the market decides to continue selling it off in the days to follow. I just see too many red flags at Green Mountain that need at least another quarter’s results before they are settled. At MAKO, it is possible their sales and earnings miss was simply delayed to a future quarter but until they can get themselves on the same profitable course as Intuitive, they have a lot of financial risk hanging over them. Again, I’d like to see another quarter or two before I’d think about picking up more shares.
What company that you are following has been tossed aside by the market? Make your case in the comments below.
latimerburned owns shares of Green Mountain Coffee Roasters, Intuitive Surgical, MAKO Surgical, Universal Display and has a Bear Put Spread on Green Mountain Coffee Roasters. The Motley Fool owns shares of Intuitive Surgical, MAKO Surgical , and Universal Display. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, Intuitive Surgical, MAKO Surgical , and Universal Display . 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. If you have questions about this post or the Fool’s blog network, click here for information.