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Why Wex Stock Crashed and Burned Today

By Rich Smith – Oct 28, 2021 at 3:19PM

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It's kind of a mystery -- and maybe a buying opportunity.

What happened

Shares of Wex (WEX 0.76%) collapsed in afternoon trading Thursday, falling 13.5% through 2:55 p.m. EDT despite the employee benefits and corporate gas card operator reporting better-than-expected sales and earnings for its fiscal third quarter of 2021.

Analysts had forecast that Wex would earn only $2.27 per share this quarter, and on sales of only $475.5 million. In fact, Wex earned $2.45 per share (pro forma), with sales approaching $483 million -- but to no avail. The stock fell anyway.  

Line of semi trucks fueling up at a gas station.

Image source: Getty Images.

So what

So what's ailing Wex today? That's not immediately clear. Wex CEO Melissa Smith called the company's results "impressive," citing a 93% increase in "total purchase volume processed across the Company" ($26 billion), and noting that revenue increased 26%.

On the other hand, earnings weren't quite as robust as the $2.45 pro forma figure suggests. When calculated according to generally accepted accounting principles (GAAP), Wex's earnings came to only $1.07 per share -- although even that number was a huge improvement over the $1.49 per share Wex lost in the heart of the pandemic in last year's Q3.

Now what

And yet, it seems earnings weren't really the issue investors had with Wex today. Instead, they worried about guidance. According to Wex, you see, fourth-quarter sales are likely to range from $468 million to $483 million. But while the top of that range would exceed the $478.9 million in revenue that Wall Street is forecasting, at the midpoint, Wex's guidance range falls about 1% short of consensus targets.

And yet, even here the news isn't all bad. While revenue may be light this coming quarter, Wex still thinks it can earn an adjusted profit of between $2.25 and $2.45 per share. Not only is the $2.35 midpoint of that range well above the $2.24 per share profit that analysts are expecting; in fact, the entirety of Wex's guidance range exceeds expectations.

Long story short, Wex beat earnings in Q3 -- and it just essentially promised to beat expectations again in Q4. And the stock is down anyway? Go figure.

Rich Smith owns shares of WEX. The Motley Fool recommends WEX. The Motley Fool has a disclosure policy.

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