This Week's 5 Dumbest Stock Moves

Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.

1. Traveling in the wrong direction
I miss the good ole Ctrip.com (Nasdaq: CTRP  ) . There was a time -- just a few quarters ago -- where China's leading travel website would blow through its conservative guidance. It's feeling far more mortal these days.

Ctrip posted fourth-quarter revenue growth of 18%, in the gut of its earlier 15% to 20% guidance.

Things wouldn't be so bad if the story ended there, but gross margin, net margin, and earnings actually declined during the quarter.

The biggest culprit is that all three of the operating expense line items -- product development costs, general and administrative fees, and sales and marketing expenses -- rose by 43% to 46% during the quarter.

Running a popular online portal should be a scalable business. There's no reason for corporate overhead to outpace a company's top-line growth, yet this is exactly what's happening at Ctrip.

2. We didn't stall the Fire
Maybe Amazon.com (Nasdaq: AMZN  ) isn't selling so many Kindle e-readers and tablets.

Barclays Capital's Anthony DiClemente is lowering his estimates for Kindle unit sales this year. He now sees Amazon moving 17.1 million Kindle Fire tablets, just shy of his earlier 18.4 million-unit projection. DiClemente is now targeting 18.4 million Kindle e-readers, well short of the 23.8 million that he was forecasting earlier.

It's no surprise to see the traditional e-reader get talked down. Despite a tablet's limitations as an e-book reader, the low prices are making them compelling Swiss Army knives of digital media consumption. However, it is a surprise to see the Kindle Fire get knocked down as well.

Outside of that giant fruit company in Cupertino, most companies would kill to move 17.1 million tablets this year. However, given the way that Amazon has been promoting the small tablet on its homepage, as well as reports indicating that Amazon is willing to sell them at a loss to gain share, it's an unwelcome surprise.

3. Vita sounds a lot like veto
Well, Sony (NYSE: SNE  ) did it. The struggling consumer electronics giant rolled out its PS Vita on Wednesday at a price point that many observers claim is just too high.

How bad has it been for the handheld gaming console that starts at $249? Well, a quick check of leading retailers and e-tailers shows that the Vita is readily available on its own. There's no need to buy costly bundles or anything like that to get your hands on a shiny new Vita. Consumers typically run into "sold out" situations on launches of new consoles and handheld gaming systems.

Well, it's not happening this time. It would be a shock if we don't see at least a $50 price cut in the coming months.

4. That's Comcastic
Comcast
(Nasdaq: CMCSA  ) is the latest name to enter the premium digital video buffet market. Comcast unveiled Streampix this week, a service that will allow unlimited viewing of a select group of TV shows and movies across different types of Web-tethered devices.

We've seen several companies do this before, though Comcast's $4.99-a-month pricing is certainly aggressive. We'll have to wait until the launch to dive into the value proposition here, but Comcast is erring by making Streampix available only to its cable television subscribers. Here's why:

  • Comcast already offers its cable subscribers a ton of on-demand TV shows and older movies at no additional cost.
  • Limiting its market to its shrinking video customer base will make it hard for the company to establish itself as a big enough player to strike licensing deals.
  • Offering Streampix at $4.99 a month for cable TV customers -- and at no cost to its "Triple Play" customers that have bundled cable, telephone, and Internet access through Comcast -- will probably eat into demand for the premium movie channels that it offers at higher price points.

Comcast can't win with Streampix. If it's a dud, it's a dud. If it's a hit, it will cannibalize bigger-ticket subscriptions to HBO, Showtime, and other premium channels.

5. A Toll order
The housing industry may not be doing so hot as some recent metrics suggest. Leading developer Toll Brothers (NYSE: TOL  ) surprised investors with a loss for its holiday quarter. Analysts were expecting a small profit.

It wasn't pretty. Home deliveries were down. Cancellation rates climbed higher. Yes, Toll is optimistic about the future, but it's been singing that tune for years.

Toll has a new CEO these days, but here are a few gems from former helmsman Robert Toll over the years:

  • 2010: "It appears our business has finally emerged from the tunnel and into a bit of daylight."
  • 2009: "We do see signs for optimism."
  • 2008: "We have seen a few glimmers of hope."
  • 2006: "Fifteen months into the current slowdown, we may be seeing a floor."

I wanted to believe CEO Douglas C. Yearley Jr. when he said that "the market feels healthier than it did one year ago," but history says that it pays to ignore the company's silver linings.

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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Ctrip.com International and Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com and Ctrip.com 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.


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  • Report this Comment On February 26, 2012, at 8:31 PM, malcolmcochran wrote:

    Traveling in the wrong direction

    I miss the good ole Ctrip.com

    Exactly what I've been saying.

    Its business model depends on large sales force - but wages are rising. The Chinese middle market hasn't bought into Online sales. Doom.

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