Bring On the Pain!

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Lowering guidance can bring on a world of pain for a company. Not only does the stock take a hit when the news is announced, but it can also continue to fall for quite a while afterward. Investors face a dilemma: Is it time to join the mad dash for the exits, or is it a buying opportunity in disguise?

A guide to the future
It's not always easy to tell whether your company is having a fire sale or burning down. With the help of Motley Fool CAPS, however, understanding the difference is now a whole lot simpler.

The investor-intelligence database compiles the opinions of more than 105,000 professional and novice investors about the stocks they think will outperform the market and those they think will not. Pairing that information with companies that have recently lowered their guidance should help us decide which of the stocks are hotter than hot and which ones aren't worth wasting water to douse the flames. A high CAPS rating with lowered guidance could present you with a real deal.

Here are five companies that have recently guided lower, coupled with what CAPS investors think:

Company	Period	Analyst Est./Previous Guidance	Updated Guidance	CAPS Rating (5 Max)
Credence Systems (Nasdaq: CMOS)	Q3 2008	($0.04)	($0.10) -($0.08)	**
Focus Media (Nasdaq: FMCN)	Q2 2008	$0.46	$0.40-$0.41	****
lululemon (Nasdaq: LULU)	FY 2009	$0.74	$0.70-$0.73	**
Sherwin-Williams (NYSE: SHW)	FY 2008	$4.71	$3.60-$4.10	***
Tibco Software (Nasdaq: TIBX)	Q2 2008	$0.08	$0.05-$0.06	***

Sources: Briefing.com. Motley Fool CAPS.

Now, this isn't a list of stocks to buy. Things rarely work all the time in investing, so this is a list for further research.

Quaking at the prospect
We can perhaps best see the short-sightedness of the market in Focus Media's earnings announcement. The Chinese advertising and media company essentially met analyst expectations for both revenue and earnings, but as a result of the devastating earthquake China recently suffered, Focus Media said the second quarter will look a little weak. The market responded by dropping the stock of the Motley Fool Rule Breakers recommendation some 14.6% so far today.

The market is not looking any further out than today and has seemingly punished the stock unnecessarily. For a company trading at just 12 times forward earnings with growth expectations in excess of 32%, that seems to be a pretty myopic point of view.

CAPS All-Star player JrIIIx, apparently a China resident, noted back in April that the unsolicited message change represents only a small part of the company's revenue stream.

Yeah, I know they got busted on the mobile advertising thing lately, but [that's] only a small part of what they do. I seriously can't go outside with running into their little tv thingies. They're in all the supermarkets, office buildings, [apartments,] etc. [It's] freakin' annoying! Ha, annoying but very, very effective.

Another CAPS player, Longfuture, acknowledges that the double whammy of the mobile advertising change and the earthquake hurt the business, but only temporarily and only in a limited fashion. For a growth stock that's so cheaply valued, it represents a great time to invest, this player thinks.

It has been hit by mobile advertising loss and Earthquake. Both minor on long term future of company. Low PEG, great future in growing country. At least 30% gain in 6 months. This is my first pick on [CAPS].

You have the Foolish outlook, Longfuture. Good luck! And may you make many more.

Guide on!
Looking at stocks whose shares have taken a dive on diminished outlooks can be a painful experience. Your input, though, can help guide other investors to higher prospects for growth even in the face of lower corporate guidance. Head to Motley Fool CAPS, and let your voice lead the way.