Why American Capital Ltd. Shares Sank

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 American Capital (NASDAQ: ACAS  ) , a private equity and venture capital firm that specializes in buyouts and recapitalizations, dipped as much as 11% after the company reported weaker-than-expected fourth-quarter results.

So what: For the quarter, American Capital reported net operating income of $0.19 per share which was negatively affected by $0.05 "due to the net impact of debt and equity securities being added and removed from non-accrual status." By comparison, Wall Street had been forecasting net operating income of $0.24. Also hurting was a net unrealized depreciation of $237 million in its portfolio valuation, headlined by a $185 million unrealized depreciation in American Capital Asset Management. ACAM is projecting weaker management fees associated with managing two mortgage-REIT portfolios.

Now what: This would mark the fourth consecutive quarter that American Capital has missed Wall Street's projections by a mile. In addition, the mortgage-REIT market may only further weaken as the Federal Reserve begins to pare back its monthly economic stimulus known as QE3. Were this to happen, its subsidiary, ACAM, may run into even rougher waters. Following this report I would suggest sticking to the sidelines until we see clear signs of top-line improvement, because net asset value gains simply aren't enough in my view to justify a purchase here.

If you're interested in a truly outstanding stock, I'd suggest having a look at The Motley Fools' top pick for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2834627, ~/Articles/ArticleHandler.aspx, 8/21/2014 7:24:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,039.49 60.36 0.36%
S&P 500 1,992.37 5.86 0.29%
NASD 4,532.10 5.62 0.12%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/21/2014 3:59 PM
ACAS $15.44 Down -0.05 -0.32%
American Capital,… CAPS Rating: ****

Advertisement