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. Shacking up
(NYSE: RSH  ) is a losing bet. Things only get uglier with every passing quarter.

The small-box retailer of consumer electronics took a hit on Wednesday after posting disappointing quarterly results and eliminating its dividend.

Why did Wall Street think RadioShack would post a profit? The chain also surprised analysts with a deficit during this year's first quarter. Margins are too thin for wireless resellers, and there was plenty of anecdotal evidence showing that phone sales are decelerating.

Income-chasing investors may have been attracted to RadioShack's juicy yield, which got wider as the company's prospects and share prices got narrower, but investors should never trust a fat yield from a fundamentally flawed company.

The RadioShack model isn't working. Why should the stock be any less of a slacker?

2. Have a nice trip -- see you next fall
TripAdvisor (Nasdaq: TRIP  ) didn't have such a bon voyage after reporting lackluster second-quarter results.

Revenue climbed 16% to $197.1 million -- shy of the $202.8 million Wall Street was expecting. It's easy to blame weakness in Europe for global travel website shortcomings, but domestic revenue only grew at half of TripAdvisor's overall rate. It also didn't help that earnings, adjusted earnings, cash flow, free cash flow, and adjusted EBITDA grew even slower than TripAdvisor's top-line advance.

TripAdvisor was essential when it launched a dozen years ago, but the arrival of social-networking websites and more dynamic websites relying on user-generated reviews make it seem less important.

Bulls will argue that TripAdvisor attracted 56 million unique visitors in May alone, but why are they so hard to monetize?

3. Another brick in Best Buy's wall of shame
It's usually not a big deal when an independent consultant moves on, but it was pretty telling when Don Delves decided he had had enough of Best Buy (NYSE: BBY  ) .

Delves was an independent consultant for the retailer's compensation committee since 2005, so he had seen plenty at the company before resigning. He didn't elaborate on his reasons for leaving, but three different sources told Bloomberg earlier this week that he left after Best Buy decided to reward 100 managers with retention bonuses that aren't tied to performance objectives.

In other words, they are merely being paid more to stick around. It doesn't matter whether the company succeeds in its turnaround -- beyond the fact that the company may not be around in a few years if they come up short.

A company that recently closed down stores and laid off employees shouldn't be shelling out more money for the managers who weren't able to avoid this mess in the first place.

4. LoserVille
Zynga (Nasdaq: ZNGA  ) shares hit fresh lows yesterday after the social-game developer reported disastrous quarterly results.

Forget the fact that revenue and meager earnings fell woefully short of Wall Street expectations. The problematic metric here is bookings. Second-quarter bookings of $302 million were far from the $329 million it recorded during this year's first quarter.

Sequential dips may be understandable in seasonal industries, but not in casual and social online gaming. Making matters worse, the company's outlook for all of 2012 implies that bookings will continue to shrink during the latter half of the year.

Here's how you know how bad matters are: The lead underwriters for the company's December 2011 IPO at $10 per share are downgrading the stock this week, even though it's trading for roughly a third of that price.

5. No thank queue
Another big loser this week was Netflix (Nasdaq: NFLX  ) . The leading video service may have managed to earn more than twice what the market was expecting in its latest quarter, but soft subscriber guidance and a forecast deficit for this year's holiday quarter made the investment about as popular as Gigli or Pluto Nash.

Netflix is blaming the Olympics for its uninspiring second-quarter subscriber growth forecast, and it suggests its push into a new European market later this year is the reason for its fourth-quarter loss. However, even good excuses are hard to accept when the near-term horizon looks bumpy.

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The Motley Fool owns shares of Best Buy, Netflix, RadioShack, and TripAdvisor. Motley Fool newsletter services have recommended buying shares of TripAdvisor and Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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

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  • Report this Comment On July 27, 2012, at 11:22 AM, BenFE08 wrote:

    RE RSH - when you have incompetent management in charge who doesn't have the guts to admit their own failures and instead blame the store level for the problem, what do you expect?

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10/21/2016 4:03 PM
BBY $39.46 Down -0.02 -0.05%
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RSHCQ $0.00 Down +0.00 +0.00%
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TRIP $62.96 Up +0.93 +1.50%
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ZNGA $2.88 Down -0.03 -1.03%
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