Innospec Shares Dropped: What You Need to Know (IOSP, PPO)

Innospec Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Specialty chemicals maker Innospec (Nasdaq: IOSP ) is due to report Q2 earnings in just a few short hours. Investors aren't waiting around for the shoe to drop. They're selling out ahead of earnings, and the stock is down 9% as of this writing.

So what: Can you blame them? I mean, last week, Innospec rival Polypore (NYSE: PPO ) reported absolutely fabulous earnings -- up 85% year over year. The stock sold off 10% anyway. Who wants to sit around for an encore of that performance?

Now what: Polypore's problem was that it planned to expand manufacturing capacity for its line of lithium-ion membranes, hurting Q3 earnings. There's no reason to believe Innospec will be adding capacity, though. More importantly, the stocks differ in another key respect: valuation. When Polypore sold off, it was selling for 40 times earnings, and looking to get even more expensive. Innospec, in contrast, costs only 6.6 times earnings today. While an earnings miss, or weak guidance, could certainly change the equation and make the stock look more expensive, the risk still looks much lower than what we saw at Polypore last week.

Will Innospec spook the market tonight? Add the stock to your Fool Watchlist and find out.

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Fool contributor Rich Smith does not own (or short) shares of either company named above. The Motley Fool has a disclosure policy.

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