Wednesday's Worst Stocks in the World

Bad days. We all have them; some of us deserve them.

Here are five stocks whose naughty ways drew investors' scorn on Wednesday:

Company

Closing Price

CAPS Rating (5 max)

% Change

52-Week Range

Central Garden & Pet (NASDAQ:CENT)

$4.34

**

(32.50%)

$4.23-$53.98

Pep Boys (NYSE:PBY)

$11.51

**

(16.17%)

$11.50-$22.49

Universal Technical Institute ( NYSE: UTI)

$17.17

***

(14.28%)

$16.94-$27.12

Worldspace (NASDAQ:WRSP)

$3.41

*

(12.79%)

$2.98-$5.66

Einstein Noah Restaurant (NASDAQ:BAGL)

$19.22

**

(7.15%)

$14.08-$24.90

Sources: The Wall Street Journal, Yahoo! Finance, Motley Fool CAPS.

Naughty?
Well, OK, we can't exactly call these stocks naughty. But none of them gets much love from our 75,000-person-strong Motley Fool CAPS community of amateur and professional stock pickers.

To the contrary -- when it comes to these stocks, CAPS investors have gone thumbs down more often than film critic Roger Ebert. They believe that none of these stocks is worth owning, and that some may be worth shorting.

Which of today's candidates is worst? Read on, dear Fool.

Worse
We begin with Central Garden & Pet, which sank to a new 52-week low after reporting a fourth-quarter loss caused by a number of factors, including weather.

Tough break, eh? Sure, but Central Garden makes today's list because management is mulling acquisitions to boost its business. Bad idea, says one Banc of America analyst. Quoting a research note issued following the earnings call:

We do not believe the company is focused enough on doing the right thing for the business. ... In our view, they should absolutely rule out acquisitions. They need to get the business on track and should be shrinking and selling, not thinking of buying.

Two things here. First, I can't help giving style points for the cute rhyming. Second, the numbers back up B of A's assertion:

Return on Capital

Trailing 12 Months

2006

2005

2004

Central Garden & Pet

5.4%

7.7%

7.9%

7.0%

Source: Capital IQ, a division of Standard & Poor's.

Why should Central Garden's management spend capital for new businesses when it can't seem to handle what it already has?

Worser
Next up is Universal Technical Institute, which Tom Gardner suggested that Motley Fool Hidden Gems subscribers sell a while back. Good call; UTI posted an unexpected loss in its fiscal fourth quarter.

But the problems with this business seem to run far deeper than a bad quarter would indicate. Foolish colleague Rich Smith puts it best, I think: "Quarterly sales slid twice as far as analysts had predicted, down 2% to $87 million, as students failed to show up in the necessary droves, and UTI increased scholarships and tuition discounts to attract the few students who did show up."

Big discounts. Poor enrollment. School's out, Fool.

Worst
But our winner is the other satellite-radio provider, Worldspace, which was down roughly 13% for reasons not yet reported. So why is it our worst? Because some stocks really are that bad. I don't know of any that are worse than Worldspace. Here's why:

Gross Margin

Trailing 12 Months

2006

2005

2004

Worldspace

(176.0%)

(182.9%)

(117.1%)

(171.6%)

Source: Capital IQ, a division of Standard & Poor's.

That's right, Fool. Save for 2003, Worldspace has always spent more than $2 to produce $1 of revenue. Don't think 2003 was a golden year -- the company spent $1.38 to bring in that $1 that year. And that's just in materials and production costs.

Before you hit me with hyperventilating claims of the "Next Big Thing," take a look at Worldspace's peers. XM Satellite Radio (Nasdaq: XMSR  ) has produced a gross profit since 2004. Sirius Satellite Radio (Nasdaq: SIRI  ) hasn't been as consistent, but its 43.9% gross margin over the trailing 12 months is an easy Worldspace-beater.

Finally, and just so you don't think I'm picking on poah-widdle Worldspace too much, here's the top bull pitch for the stock in CAPS: "Eventually people are going to hear that there is another satellite radio company serving the fastest growing economies: India, China, and Europe. Worldspace will probably not be profitable in my lifetime, but that doesn't matter to people that get in on satellite radio stocks." (Emphasis added.)

Satirical. Accurate. Perfect.

Worldspace and its capital-incinerating management team ... Wednesday's worst stock in the CAPS world.

Do you agree? Disagree? Let us know what you think by signing up for CAPS today. It's 100% free to participate.

See you back here tomorrow for more stock horror stories.


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