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. Hit the deck
Trex
(NYSE: TREX  ) isn't doing as well as it thought it would be doing.

The leading maker of wood-alternative decks and railing products tumbled 12% on Tuesday after posting quarterly results that betrayed its earlier guidance.

Revenue climbed 4.5%, to $98.6 million, but Trex itself had told investors in early May to expect revenue to clock in 10% higher. It was already several weeks into the second quarter at the time. What could possibly have gone wrong?

Rain! Trex alluded to a wet June drying up demand for new and replacement decks. Pulling a Milli Vanilli playlist, Trex blames it on the rain.

That's fine. Trex's product may be weather-resistant, but the same can't be said for homeowner appetite for deck projects. However, wouldn't a rainy June push sales to the current quarter? That doesn't appear to be happening, as Trex disappointed investors by eyeing just 2% in top-line growth for the third quarter.

2. Penney arcade
This just hasn't been Bill Ackman's year.

The historically astute Ackman has been on the wrong side of some prolific stocks lately, but then we get to his inexplicable plea for J.C. Penney's (NYSE: JCP  ) board to hurry up and name a new CEO.

Interim CEO -- and former helmsman of the struggling department store chain -- Mike Ullman, may or may not be the right person for the job, but Ackman's call for another former CEO to be brought on as board chairman to help expedite the CEO process is hard to swallow.

It was Ackman, after all, who championed the effort to bring Ron Johnson to J.C. Penney. His radical makeover practically killed the chain (or maybe it did and it's just the walking dead now). J.C. Penney rushed the leadership process once at Ackman's insistence, and it was disastrous. Why would it pay off this time around?

Sometimes, an activist investor needs to know when to be passive.

3. Glu gun
Mobile apps publisher Glu Mobile (NASDAQ: GLUU  ) took a hit this week after forecasting revenue of $96.8 million to $98.9 million for all of 2013. Analysts were only holding out for $84.4 million, so what could be the problem?

Well, for reasons that are not entirely clear, Glu Mobile is reworking the way it does its accounting. It restated results all the way back to 2010 to begin including the 30% commission that it pays to iOS and Android marketplaces for in-game purchases. Naturally, cost of revenue also rises by the same amount. Profitability remains the same. However, this does inflate the top line.

We know how dramatic this can be, because last year's revenue of $87.8 million is now recast as $108.9 million. What seemed to be an upbeat top-line forecast is actually pretty bleak, and that's before we get to the larger-than-expected deficits that Glu is now targeting for the current quarter and all of 2013.

4. Jamba gets juiced
Jamba
(NASDAQ: JMBA  ) blenders aren't spinning as fast as investors would like.

The parent company behind the 829-unit Jamba Juice smoothie chain slipped after posting disappointing revenue growth in its latest quarter.

Revenue inched 2% higher, to $67.3 million, well short of the 7% growth that the pros were targeting. Earnings grew substantially faster, and comps have been consistently positive over the past two years. However, after widening its menu Jamba really should've been able to take advantage of the favorable tailwinds. Folks are eating healthier. The improving economy is giving consumers more money to spend. It's been a hot spring and summer, making a refreshing icy fruit beverage all the more enticing.

All of these factors are working in Jamba's favor, yet all we get is 2% growth? Next time, Jamba, can shareholders get a free boost with that?

5. Windstream blows past a yield sign
Some companies can't take a hint.

Windstream (NASDAQ: WIN  ) is sticking to its quarterly payout policy of $0.25 a share, even though the fading regional telco hasn't earned enough to cover its hefty dividend rate for a couple of years.

We know the drill. Folks are nixing their landlines, and while Windstream and other regional telecommunications providers are trying to offset this by providing other services, the long-term outlook isn't very positive.

Things are so bad that Windstream recently declared that nearly two-thirds of the distributions it shelled out last year were return of capital.

It may get even worse. Revenue only dipped slightly, but net income plunged 22%, to $0.06 a share. How much longer can you keep paying out quarters when you're only making pennies?

Beware of Windstream's tempting 12.1% yield.

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  • Report this Comment On August 09, 2013, at 5:46 PM, drseusphd wrote:

    Its interesting that I keep reading articles about dividend stocks that pay out divs larger then eps...but when we have MANY socks that don't pay a div and are in the NEGATIVE earnings column we call them opportunities or growth stocks..on the third hand we have many Reits and MLPs paying out consitantly outlandish Dividends with consistently outlandish negative earnings over years..and on the fourth hand there are many Larger well known Blue chips whose earning don't cover their Divs and are completely ignored in these blogs...So my point is Why do you find it so important that these few companies must cover dividends with their earnings? and please give us the date that you predict that they must accomplish this feat or go bankrupt ...1 quarter from now 1 year from now... seems like a tired old and weak argument against these stocks

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