Beaten Up on Earnings Days, These 2 Stocks Need to Surprise the Market With Stellar Results
Robby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
During the past twelve months, the stock prices of Travelzoo and Tempur-Pedic have moved in contrary motion to the market – they’re down 40% while the S&P 500 is up 15%. The two companies are scheduled to release earnings on Monday, January 21, and investors will be watching the reports closely for any indication that another nosedive is around the corner.
Long-term shareholders of Tempur-Pedic (NYSE: TPX) have likely noticed the stock’s erraticism in 2012. During the past twelve months, the price has had tsunami-like movements upwards and downwards, giving both short-sellers and short-term holders an opportunity to make some cash. To summarize its financial roller coaster in 2012: the stock plunged 50% between April and June, gained 50% from June to September, dropped 20% between September and November, and has since shot up by around 40%. Keep in mind, of course: if a number drops by 50%, a subsequent rise of 50% won’t bring the number back to its original value; all these swings taken together put the share price 40% below what it was one year ago.
Several factors sway this company’s share price, and the market certainly considers quarterly results to be central to the movements. Tempur-Pedic will be releasing its fourth quarter results next week, and the company has been under intense scrutiny exactly because the previous three quarters have been so tenuous. When the company released its Q1 results – revealing a disappointing outlook for the year – investors shirked the stock and sent it spiraling downward.
In this upcoming earnings report, investors are expecting Tempur-Pedic’s earnings per share to be $0.55, down from the $0.84 they were expecting during the same quarter last year. The stock has been hammered in the past four quarters as investors have lowered their expectations for earnings, revenue, and management competency.
My remarks about the company may come off as sounding dire, but in reality, it may be beneficial that expectations are low. Investors may have already priced-in their revulsion, and it’s possible that the current stock price already reflects the expectations of the market. But, as always, if the company stuns investors by releasing some wildly disappointing numbers, the stock may continue its decline.
Even though Travelzoo (NASDAQ: TZOO) exceeded EPS expectations in four of the five past quarters, shares of the company were trounced during that time. The bearish consensus from the market isn’t especially new – since April 2011, the stock has gradually fallen by 80% and hasn’t shown many signs of improved optimism.
On prior earnings report days, the stock price has taken some wild swings; Monday’s report may be a precursor to Travelzoo’s next spike or plunge. Its last report was in October, when it met expectations on EPS and met expectations on revenues. That would have all been fine, except that those numbers had dropped significantly compared to the prior-year quarter. Margins were also down.
In contrast to Travelzoo’s floundering stock performance, its main competition has been doing quite nicely. Expedia’s (NASDAQ: EXPE) stock has doubled in the past year and tripled in the past two. The company has been successful connecting with its consumers, using real-life travelers as spokespeople in their ad campaigns and avoiding any aura of mendaciousness. The company's quarterly earnings have met or exceeded analyst estimates in five of the past five quarters, and Motley Fool CAPS players overwhelmingly vote Expedia to be an outperformer in the market. In the mind of investors, Expedia shares have the momentum of a runaway freight train, and the excitement behind the bull run adds to the perception that it can go even higher.
Another competitor, Priceline (NASDAQ: PCLN), has also performed well over the past twelve months, gaining 40% in share value. The company, represented by the iconic William Shatner, has a perfectly recognizable product that puts its business ahead of the others in the travel industry. As with Expedia, Priceline has met or exceeded analyst expectations in every one of the past five quarters. Bullish investors love its exponential revenue growth, its double-digit margins, and its brand. Travelzoo doesn’t enjoy quite the same status in the industry.
The bottom line
Although the SEC requires certain companies to disclose financial statements on a quarterly basis, the frequency of the new information isn’t necessarily helpful to investors. Long-term shareholders should remain focused on the company’s long-term company strategy, not on quarterly results. We may see some surprises from Travelzoo and Tempur-Pedic, but investors should avoid acting impulsively on the news.
Robby Greengold owns no financial interest in any of the companies mentioned in this article. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com and Tempur-Pedic International. 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!