Offering earnings guidance above analyst expectations is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.
Sometimes things don't work out as planned, though, so we'll pair up the brighter outlook with the sentiments of the 180,000-member Motley Fool CAPS community. If the best and brightest stock pickers think a company's long-term potential is outstanding, coupled with the company's own improved sentiment, maybe investors should take notice.
Here are two stocks that recently raised guidance.
Prior or Consensus Estimate
|ExactTarget (NYSE: ET )||**||($0.39)||($0.29 - $0.27)||FY12 EPS|
|SodaStream (Nasdaq: SODA )||**||Net profits up 42%||Net profits up 50%||FY12|
Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Like Nigerian credit card scams, direct marketing works despite complaints, or else why would it persist? We might bemoan our email boxes filling up with ads for the latest mail-order drug, but someone's responding and sending money.
Indeed, the Direct Marketing Association says email marketing offers businesses the best return on their money of any marketing channel, returning an estimated $40.56 for every dollar spent in 2011. And it's not slowing down. Forrester Research says email marketing will grow 10% annually in the U.S., hitting $2.5 billion by 2016!
No wonder email marketing specialist ExactTarget tapped the public markets in a March IPO that raised $162 million. Spam is a huge growth industry! Rival Constant Contact has seen its revenues grow at a better-than-40% annual compounded rate over the last five years yet it's not always a profitable business. Constant Contact only turned profitable in 2010 and ExactTarget has lost money in three of the last five years.
Its most recent quarterly report showed that while revenues jumped 45% from the year-ago period as international revenues more than doubled, it posted wider losses (even though they were narrower on a per-share basis). That's a trend it expects to continue as it says it expects full-year sales to come in between $270 million and $273 million, a 32% increase over 2011.
This is a company that provides spam to people. Do people like spam? No. Is it evident in their financials? Yes, zero earnings.
Its cup overfloweth
I wouldn't put homemade-soda maven SodaStream in the same category as spammers, but I'm not enamored of its business model. I've criticized the lack of a competitive moat, distribution, and cost compared to buying Coca-Cola (NYSE: KO ) or Pepsi (NYSE: PEP ) . While my Foolish colleague Rick Munarriz says SodaStream would be a huge company if it could snare just 1% of Coke's valuation, that seems too much like penny stocks trying to latch onto being the next Wal-Mart or Microsoft. They're just not playing in the same league.
However, I will credit Rick with convincing me the soda jerk isn't a fad, but rather a niche product, which means it could have some legs. While there's a fine line to walk between the two camps, it's notable that for two quarters running now SodaStream has been raising guidance. Consumables are leading the way to growth and account for 60% of revenues.
The risk here is that like Green Mountain Coffee Roasters (Nasdaq: GMCR ) , which is losing key patent protection on its machines and pods, others may move in on the soda flavors if the profits look rich enough. Worries of such an inflow of competitors has absolutely crushed Green Mountain Coffee Roasters and could be a dark cloud hanging over SodaStream in the future.
SodaStream's operating and net margins have been improving at a healthy clip, but that's not enough to persuade me to change my underperform rating on CAPS, though the new (limited) distribution agreement with Wal-Mart ought to help it gain a lot more adherents. I just wonder if the pact with the devil will mean those rising margins will soon turn tail.
Tell me on the SodaStream CAPS page or in the comments section below if you think it gave up some points to get much-needed growth, then add the soda machine maker to the Fool's free portfolio tracker to see what bubbles up
Raise your sights
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