Yearnings for Earnings Sent These Stocks Lower

Unemployment rose -- but so did the market! Investors were willing to lay aside the numbers-massaging the Bureau of Labor Statistics did to achieve that increase and latch onto the "good news" for a bout of irrational exuberance. But some companies had their own problems to contend with and couldn't join in the fun, managing to run in the other direction. Some even plunged by double-digit percentages.

So let's see whether their share price punishment was justified, as panic-fueled declines can sometimes lead to excellent buying opportunities.

Company

Friday's Change

Price

CAPS Rating (out of 5)

Zipcar (NYSE: ZIP  ) (36.5%) $6.75 ****
Molycorp (NYSE: MCP  ) (28.5%) $11.49 **
Zagg (Nasdaq: ZAGG  ) (22.3%) $8.31 *

Driving in reverse
Car-sharing innovator Zipcar ran into a ditch last week after cutting guidance as revenue falls short of analyst forecasts. It's been a typical market reaction these days for any company not living up to Wall Street's forecasts to careen out of control, but when Zipcar reduced its own full-year revenue estimates, that seemed enough to put the stock up on blocks. The pick-up-and-go car company said revenue will range between $272 million and $278 million, down from its previous guidance of $290 million to $296 million, and it's not the first time it's had to revise its outlook.

Apparently, sharing a car with the service comes with some hefty upfront fees that make it more expensive than getting one from low-cost rival cars2go. Zipcar says it will be reducing those fees, but that will cut into its revenue stream.

I've previously rated Zipcar to underperform the market on Motley Fool CAPS because it is a no-moat start-up in a field with some deep-pocketed rivals like Hertz and Avis (NYSE: CAR  ) , both of which have started similar services. With the concept of car-sharing still largely unknown, anyone can enter and make a name for themself, but let me know in the comments section below if you think Zipcar can regain control of the wheel.

Not to be
They always tell you to go with your first instincts, and when it comes to the other "Z" stock on our list of losers Friday, Zagg -- a maker of protective coverings for smartphones and tablets -- I should have stayed with my gut feeling and kept my underperform rating on CAPS.

Earlier this year, I engaged in a bit of Hamlet-esque debate with myself over whether the maker of invisibleSHIELD protectors would always be a maker of commoditized products or could benefit from Apple's (Nasdaq: AAPL  ) soon-to-be-launched iPad 3. As I worried about inventory building up on retailer shelves, I also looked at the potential for its relationship with HZ0, a waterproofing technology that protects your electronic device when it's submerged in water. In the end I was wowed by technology, so I closed out my underperform rating and switched it to outperform.

The gadget protector company did sell more product, but profit came in below expectations, and the market apparently didn't like the prospects of thinning net margin, even if trailing gross and operating margins increased slightly from the year-ago period. I'll be changing directions once again and closing out my outperform rating, but feel free to head over to the ZAGG CAPS page and let me know whether its true potential remains to be seen.

Digging a hole
Traction is something more elusive for Molycorp than the rare-earth elements it mines, as prices continue to fall, albeit at a slower rate than before. Still, it's a trend the company expects to continue for the rest of the year, which makes the need to find financing all the more imperative. Cash flows from operations are coming up short, and as it had expected to finance its capital expenditure program from the cash it had on hand, its dwindling resources prompted it to seek outside sources of money. And if it can't get that, Molycorp will have to resort to plan B: cutting out all discretionary capex spending and, if necessary, nondiscretionary spending, too.

That's not the picture of a smoothly running operation, and with increased production not scheduled to kick in until next year, Molycorp is running down the clock, and investors are worried. It might get the financing it needs -- companies always have to include the boilerplate about what happens if the money doesn't come through -- but it's not an enviable position to be in, and the possibility of better pricing seems far off.

Tell me in the comments box below or on the Molycorp CAPS page if you think its prospects for success will be rarer than hen's teeth.

Ready for a resurrection
These stocks fell apart despite the market's exuberance, but Apple, one of the greatest plays in all of tech, is ready to make a new run of its own, and you can grab the Fool's new premium research report on the company -- including 12 months of free updates! -- by downloading your copy today.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Hertz Global Holdings, Apple, and Zipcar. Motley Fool newsletter services have recommended buying shares of Apple and Zipcar. Motley Fool newsletter services have recommended writing naked calls on Zagg. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2012, at 2:56 PM, sophrosyns wrote:

    Somewhere a village is missing an idiot. MF had previously incorrectly reported that ZAGG missed their estimated earnings number when in fact they hit it. And here you are perpetuating the error. One begins to think some financial writers are actually shills for funds/individuals shorting stocks. BTW, why do they call it estimated if everyone expects them to make or exceed the number?

  • Report this Comment On August 08, 2012, at 5:36 PM, Gary03mw wrote:

    As the poster above stated. Zagg met EPS expectations and beat revenue expectations by a fairly large margin. The only reason I can see for the sell off is false reports such as this one.

  • Report this Comment On August 09, 2012, at 8:18 PM, slickandjake wrote:

    I agree with the above two comments, the company grew 59% on the top line, met EPS expectations of $0.18 which grew 80%, increased margins, has incredible free cash flow, etc. Inventory levels have been dropping since last September. About the only negative is that it has debt. There are concerns that they have too much reliance on one product and that competition may get tougher, but that has not slowed down the growth yet. At a PE ratio of around 12 and growth at 50%, this stock is terribly undervalued at the moment. There is a lot of short interest and that makes this stock even more volatile, but if they can continue to sustain these growth rates than Zagg stock will eventually rise to much higher levels.

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