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Why Ply Gem Holdings Shares Dropped

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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 building products maker Ply Gem Holdings  (NYSE: PGEM  ) fell as much as 25% today after an analyst downgraded the stock.

So what: JPMorgan Chase analyst Michael Rehaut moved the stock from overweight to neutral, citing near-term operational challenges that "are likely to continue for at least one to two more quarters." A preliminary fourth-quarter sales estimate of $330 million-$335 million fell below JPMorgan's estimate of $365 million and that's enough to turn pessimistic on the stock.  

Now what: Short-term weakness or not, we're just at the beginning of a housing recovery and the long-term trends for Ply Gem are strong. Wall Street tends to focus on missing or hitting estimates that are only best guesses anyway, so it's really JPMorgan that had its fourth-quarter numbers wrong, not Ply Gem. I'll also point out that the market's reactions to downgrades are often short term in nature, while it's long-term profits that will drive the stock.

Look at the earnings trends in the fourth quarter, including a growing bottom line, because that's what will move the stock, not the opinion of an analyst at a big bank.

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  • Report this Comment On January 13, 2014, at 4:36 PM, wallstr33t wrote:

    I thought the same as you when I purchased PGEM at $18. I hope you're right and I also hope JPM falls drastically for making stupid predictions like this.

    They, of all people have no room to talk. I'm beginning to wonder how much of their earnings are legal. They seem to be in trouble for different reasons every year.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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Related Tickers

8/28/2015 12:50 PM
PGEM $13.57 Up +0.18 +1.35%
Ply Gem Holdings CAPS Rating: **