The S&P 500 might be trading near an all-time high, but not every stock has benefited from the rally. In fact, Under Armour (UA 5.25%) (UAA 5.42%), StonMor Partners (STON), and Intra-Cellular Therapies (ITCI -0.74%) have all fallen by more than 50% over the past six months. Does that mismatch suggest that it could be a good time to get in? Let's take a closer look at the reasons behind each company's decline to see if we can surmise an answer.
Under Armour lays an egg
Growth investors don't look kindly upon companies that whiff on their earnings reports. That's exactly what happened when Under Armour reported results from its all-important holiday quarter. Sales growth came in at just 12%, which is a disappointing result for a company that produced sales growth of at least 20% for 26 quarters in a row. To add insult to injury, CEO Kevin Plank put a damper on growth expectations for 2017, too. He expects top-line growth of just 11% to 12% for the year ahead, which hints that the short-term challenges are not going away anytime soon. In addition, he abandoned the company's forecast of $800 million in profits by 2018. Given all of the above, it is easy to understand why the share price has fallen 54% over the last six months.
Despite the bummer news, I think there are reasons to believe that better times lie ahead. While the company's North American apparel business is facing some headwinds, Under Armour's footwear and international business are still growing rapidly. The company also recently struck up a new partnership with retail giant Kohl's that could help to offset the losses from the bankruptcy of outlets like Sport's Authority, Bob's Stores, Eastern Mountain Sports, Sports Chalet, City Sports, and more.
In total, Under Armour's long-term growth prospects continue to look favorable. If the company can successfully execute against its market opportunity, then I could easily see growth investors returning to the stock. If true, then buying while pessimism is still so high could prove to be a profit-friendly move.
No "mor" big dividend
As an operator of cemeteries and funeral homes, you'd likely assume that StonMor Partner's business is as dependable as they get. Mortality rates are highly predictable, so the company has a long history of passing along its profits to investors in the form of a big dividend. That fact attracted many income-focused investors to its stock.
However, StonMor's business model proved to be mortal over the last few months. In October, the company shocked the markets by announcing that it would be cutting its dividend by 50%. The market's responded in kind by sending shares down more than 58% over the last six months.
What was the reason behind the massive dividend cut? Management said it is seeing higher than expected turnover in its sales team. That's a big problem as it takes a long time to hire and train new salespeople. If that wasn't bad enough, the company said that more families are choosing cremation instead of traditional cemetery plot burials. While StoneMor offers cremation services, too, it makes much more money from traditional cemetery plot sales. The combination has put StonMor's top and bottom lines under a lot of pressure. In an effort to save money, management made the tough decision to slash the dividend.
As if this situation wasn't bad enough, the company isn't positive that the 50% dividend cut will be big enough to alleviate the situation. If the high turnover rates in the sales team do not subside, it's possible that further dividend cuts could be in the cards. If true, then another big drop in the share price isn't out of the question. To me, that makes StonMor a turnaround story that's too risky to touch.
Rolling the FDA dice
Clinical-stage biotech stocks are notorious for posting massive one-day gains or losses based on data readouts. A few months back, Intra-Cellular Therapies was on the receiving end of the latter. Shares plunged more than 60% in a single trading session after the company released disappointing phase 3 data for its lead compound, lumateperone. Intra-Cellular was testing this drug as a hopeful treatment for schizophrenia, but the study showed that the drug performed slightly worse than patients who took a placebo. The drug also performed far worse than those who took risperidone, a currently available treatment. This data suggests that lumateperone may not be an effective treatment for the disease. The markets have responded to this increased uncertainty by knocking down the company's share price by more than 66% over the past six months.
The company's bulls will be relieved to know that management hasn't given up on lumateperone just yet. The company's executives pointed out that the placebo response rate from the study was "unusually high." That's why they have decided to push forward and have planned a meeting with the FDA in a few weeks to discuss the submission of the drug for approval. Given that lumateperone continues to have a very strong safety profile and performed well in another phase 3 study, it's possible the FDA will give this drug the green light.
Of course, this is the FDA we're talking about, so there are never any guarantees of success. While I can understand why some risk-loving investors would be willing to roll the dice and buy shares today, I think the smart move is to keep this stock as a watchlist idea for the time being.