I follow quite a lot of companies, so the usefulness of a watchlist for me cannot be overstated. Without my watchlist, I'd be unable to keep up with my favorite sectors and see what's really moving the market. Even worse, I'd be lost when the time came to choose which stock I'm buying or shorting next.
Today is Watchlist Wednesday, so I'm discussing three companies that have crossed my radar in the past week and at what point I may consider taking action on these calls with my own money. Keep in mind that these aren't concrete buy or sell recommendations, and I don't guarantee I'll take action on the companies being discussed. But I promise that you can follow my real-life transactions through my profile and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
This weeks' column is strictly devoted to three companies with upcoming earnings reports that appear to be nearing an inflection point of either big profits or big pain for investors.
If there's one company reporting earnings this week that you'll definitely want to keep your watchful eyes on, its online professional network LinkedIn, which has seen its shares dip around 40% from its all-time high set in September.
On one hand, LinkedIn has a lot going for it -- and many at The Motley Fool have been rightly bullish on the company. The company recently announced that it had reached the 300 million-member milestone, while in February it reported a year-over-year revenue increase of 47%. LinkedIn is successfully translating its ability to court new members and keep existing members engaged, which led to a premium-subscriptions jump of 48%.
But I've long been a skeptic of LinkedIn's valuation, with my primary concern revolving around the company's slowing revenue growth and extremely high forward P/E. Of course, with shares losing 40% of their value over the past eight months that forward P/E is now just a bit over 60 and no longer over 200! Still, questions remains as to how LinkedIn will further monetize its product and diversify its revenue stream beyond the U.S. In the fourth-quarter, for instance, 61% of its revenue came from within the U.S.
In other words, this is setting up to be a very big quarter for LinkedIn's current shareholders. In one corner are optimists who anticipate high growth to continue and for the company to optimize its recurring revenue platforms both within and outside the United States. In the other corner we have skeptics who expect believe LinkedIn's slowing growth and low barrier to entry in online professional networking will expose it to more downside.
If anything, make sure this stock is on your watchlist for Thursday's earnings report, as it promises to be a doozy one way or another.
We're getting near the make-or-break point for biopharmaceutical company Dendreon, which is expected to report its first-quarter results next week.
Dendreon's possible claim to fame (and a rebound) is Provenge, its immunotherapy vaccine designed to treat late-stage prostate cancer. While Provenge is incredibly innovative in that it uses a patients' own immune cells to target specific protein signatures given off by cancer cells, its launch was nothing short of disastrous. Its high price point of $93,000 brought insurer, consumer, and physician backlash, and in short order a number of new competitors had entered the market that priced their therapies at a discount to Provenge. The end result was Dendreon's peak sales estimates for Provenge falling from more than $4 billion to around $400 million according to Wall Street analysts.
Yet there's still hope among shareholders that Dendreon's unique immunotherapy discovery platform holds value and that steep costs cuts can make Dendreon profitable on Provenge alone. Working in its favor is the fact that Dendreon is well underway on its second major restructuring involving job cuts and expenses tightening. Couple this with the fact that Provenge was approved in the EU last year, and it's possible that higher sales and shrinking losses could excite shareholders.
There are a lot of questions left to be answered in the first quarter. We probably won't see much of anything in the way of EU sales with Provenge launching so recently, but investors are going to expect demonstrable reductions in costs and a lessening of its cash burn. Dendreon has certainly been out-maneuvered by its peers in the U.S. and overseas, but the prostate cancer treatment space appears large enough to accommodate Provenge and perhaps push sales north of $400 million.
Investors will want to pay close attention to the company's year-end cash and cash equivalent guidance as well as the extent to which it's implemented cost-saving actions. Like LinkedIn, this promises to be a volatile stock in the coming weeks.
Blue Nile (NASDAQ:NILE)
Finally, online-based diamond and jewelry-setting retailer Blue Nile looks to be set up for a market-moving report on Thursday along with LinkedIn as well.
Recently Blue Nile has reveled in weaker gold prices as it's allowed the company to move further into the settings business. Generally speaking, in the jewelry business the more options you offer your customer the happier than customer is going to be. Because gold prices are down Blue Nile's been able to better compete against higher-priced bricks-and-mortar retailers.
We saw evidence of this in the company's latest quarterly report where it highlighted a nearly 7% increase in net engagement sales and an 8% boost in nonengagement net sales. While still a small component to its revenue, international sales are also expanding steadily for Blue Nile. CEO Harvey Kanter mentioned the company would continue to "expand exclusive product offers, elevate levels of customer service, and increase our global reach [this year]."
But there's another side to Blue Nile that investors have a hard time understanding. I've worked in the jewelry industry previously, and I can tell you that Blue Nile's two biggest challenges are its inability to forge an emotional connection with the consumer and maintaining a comparative advantage.
The first problem is simply that buying a diamond or jewelry piece for someone else online is often based solely on price and not emotion. Although it's true that bricks-and-mortar retailers in malls often cost more, they also provide a face to go to after making a purchase and allow for a lifelong connection to form. I would suspect that these connections are few and far between for the Blue Nile customer.
Secondly, Blue Nile has little control over its input costs. If diamond prices rise, Blue Nile could find itself in trouble, as the majority of diamonds in its listing are consignment only (meaning it doesn't own those diamonds and only purchases them when a customer agrees to buy). Since larger bricks-and-mortar stores use their leverage to buy in bulk they can often obtain welcome discounts on diamond purchases. If prices spike higher, though, Blue Nile, owning very few diamonds, loses almost all of its comparative advantage over mall-based jewelers.
Long story short, with the stock valued at more than 30 times forward earnings, Blue Nile's upcoming report had better sparkle, or I suspect short-sellers will be out in full force.
Is my bullishness or bearishness misplaced? Share your thoughts in the comment section below and consider following my cue by using these links to add these companies to your free, personalized watchlist to keep up on the latest news with each company:
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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