July 31, 2012
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: Shares of 3-D projection systems supplier RealD (NYSE: RLD ) plunged 20% on Tuesday after its quarterly results and guidance came in below Wall Street expectations.
So what: RealD's wide first-quarter miss -- EPS of just $0.05 versus the consensus of $0.15 -- combined with a disappointing current-quarter-revenue outlook reinforces serious concerns of late overly slowing growth. Management cited a lower mix of recycled 3-D eyewear in shipments and spiking product costs as the primary reasons for the poor quarter, giving Wall Street plenty of reason to be worried about profitability going forward.
Now what: Management now expects its second-quarter revenue to decline from the year-ago period and also from the first quarter. "The prior-year quarter is a very tough comparison against Harry Potter and Transformers," CFO Andrew Skarupa reassured analysts in a conference call. "Both films generated more than $10 million in admission-based license fees in the September quarter a year ago." Unfortunately, when you couple the stock's forward P/E of 18 with the cost and revenue headwinds working against it, RealD doesn't seem worth the risk.
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